Explain any two measures to remedy the p...

Explain any two measures to remedy the problem of excess demand in an economy.

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Measure to control excess demand are:
(i) Decrease in government spending. In this fiscal measure, central government reduces its expenditure in order to decrease level of aggreagate demand.
(ii) Increase in government revenue. I.e.increase in taxes, increase in public debt, decrease in deficit financing.
(iii) Decrease in availability of credit. Central bank aims to reduce availability of credit through 'Monetary policy'.
It includes:
(a) Increase in bank rate.
(b) Sale of securities
(c ).Increase in lega reserve requirements(CRR& SLR).
Qualitative instruments:
(a) Increase in margin instrument
(b) Moral suasion (to discourage lending)
(c ).Selective credit controls (credit rationing).

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Causes of excess demand is

increase in money supply

increase in imports

decrease in deficit

none of these.

Excess demand leads to:

increase in the level of employment

Decrease in the level of employment

No change in the level of employment

None of these

To control excess demand, CRR is

decreased

increased

does not change

none of these