Explain the meaning of Deflationary Gap. State one wav of correcting i

1.	Explain the meaning of Deflationary Gap. State one wav of correcting it.
Answer» When AD is less than AS at full employment level. It is a situation of Deflationary Gap. Role of Margin Requirements to Reduce Deflationary Gap: Margin requirement refers to the difference between the amount of loan granted and the current value of security offered for loans. In case of Deflationary Gap, the margin requirements are lower to increase the flow of credit by encouraging people to borrow. As a result of that, the Aggregate Demand increases and ultimately the economy attains equilibrium.

Explain the meaning of Deflationary Gap. State one wav of correcting it.

Answer»

When AD is less than AS at full employment level. It is a situation of Deflationary Gap.

Role of Margin Requirements to Reduce Deflationary Gap: Margin requirement refers to the difference between the amount of loan granted and the current value of security offered for loans. In case of Deflationary Gap, the margin requirements are lower to increase the flow of credit by encouraging people to borrow. As a result of that, the Aggregate Demand increases and ultimately the economy attains equilibrium.

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