What is deficient demand? Explain the role of Bank Rate in removing.

1.	What is deficient demand? Explain the role of Bank Rate in removing.
Answer» Deficient demand exists when aggregate demand for a level of output is less than full employment level. In other words, deficient demand exists when aggregate demand falls short of aggregate supply at full employment level. It is a level of demand which is insufficient to eliminate involuntary unemployment. Deficient demand gives rise to a deflationary gap. Role Of Bank Rate in removing it :- Bank rate is the rate of interest at which the central bank of a country gives credit to commercial banks. For controlling deficient demand, the central bank should decrease the bank rate. A decrease in bank rate reduces the market rate of interest as a result credit becomes cheap. Accordingly, the demand for credit increases and aggregate demand is increased and the problem of deficient demand can be solved.

Answer»

Deficient demand exists when aggregate demand for a level of output is less than full employment level. In other words, deficient demand exists when aggregate demand falls short of aggregate supply at full employment level. It is a level of demand which is insufficient to eliminate involuntary unemployment. Deficient demand gives rise to a deflationary gap.

Role Of Bank Rate in removing it :- Bank rate is the rate of interest at which the central bank of a country gives credit to commercial banks. For controlling deficient demand, the central bank should decrease the bank rate. A decrease in bank rate reduces the market rate of interest as a result credit becomes cheap. Accordingly, the demand for credit increases and aggregate demand is increased and the problem of deficient demand can be solved.

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