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Explain the concept of inflationary gap. Also explain the role of “legal reserves” in reducing Inflationary gap.

      

Explain the concept of inflationary gap. Also explain the role of “legal reserves” in reducing Inflationary gap.

  

Answers


marlyne
Inflationary gap is the excess of aggregate demand over and above its level
required to maintain full employment equilibrium in the economy.(with diagram)
During inflation, both CRR and SLR are raised. This reduces credit creation capacity
of commercial banks. As a result, aggregate demand reduces as required to correct
inflationary gap.

marlinbito answered the question on May 12, 2018 at 13:13


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