'India has been dealing with the problem of Deficient Demand, since the imposition of Covid lockdown in March 2020'. State and discuss any two monetary policy measures to combat the situation of Deficient Demand in India.

Question

Accepted Answer

**Two monetary policy measures to combat deficient demand:**

1. **Decrease in Bank Rate:** The Central Bank can reduce the bank rate, which is the rate at which it lends to commercial banks. A lower bank rate reduces the cost of borrowing for commercial banks, enabling them to lend at lower rates. This encourages borrowing and investment, increasing aggregate demand.

2. **Open Market Operations (Purchase of Securities):** The Central Bank can purchase government securities from the open market. This injects money into the economy, increasing the reserves of commercial banks and their capacity to create credit. Higher credit availability boosts consumption and investment expenditure, correcting deficient demand.