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An inflationary gap arises when Aggregate Demand exceeds the maximum potential supply in an economy. To overcome this situation. What monetary measures have been taken by the Central Bank of India?

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Crash Course Expert with 15 years of teaching experience in commerce

If there is inflation then in such situation Central bank should reduce the money supply by increasing the bank rate, repo rate, cash reserve ratio, statuory liquidity ratio. It should sell bonds to commercial banks to reduce their lending capacity. In such situation Cenrtal bank pursue moral suasion...
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If there is inflation then in such situation Central bank should reduce the money supply by increasing the bank rate, repo rate, cash reserve ratio, statuory liquidity ratio. It should sell bonds to commercial banks to reduce their lending capacity. In such situation Cenrtal bank pursue moral suasion i.e. not to lend specific sectors and they also pursue credit rationing.

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