"The Reserve Bank of India (RBI) has decided to increase the loan amount to 90% of the security value, from the prior rate of 70%." In the light of the above statement, identify the type of monetary measure exercised by the Reserve Bank of India (RBI) and its likely impacts on the Aggregate Demand of an economy.

Question

Accepted Answer

Based on the statement about RBI increasing loan amount to 90% of security value:

Identification:
1. This is a change in Margin Requirements
2. It is a qualitative tool of monetary policy
3. Aims to increase credit availability

Explanation:
1. Margin requirement decreased from 30% to 10%
2. Borrowers can get more loans against same collateral
3. Credit availability increases significantly
4. Borrowing becomes much easier
5. Consumption and investment increase
6. Aggregate demand increases
7. Economic activity is stimulated

Impact:
- Significant increase in credit flow
- Higher consumption
- More investment
- Strong economic growth
- Higher inflationary pressure