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Explain the Role of Repo Rate in Reducing The Inflationary Gap. - CBSE (Arts) Class 12 - Economics

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Question

Explain the role of Repo Rate in reducing the Inflationary gap.

Solution

Because of an inflationary gap, the repo rate will be increased by the central bank and it will increase the cost of borrowings for the commercial bank. This leads to a decline in the demand for loans and consumption expenditure. Thus, the aggregate demand comes down nd the economy attains equilibrium.

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Solution Explain the Role of Repo Rate in Reducing The Inflationary Gap. Concept: Concept of Aggregate Demand and Aggregate Supply.
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