describe the measures of improvement in excessive demand
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Answer:
Measure to Correct Excess Demand!
During excess demand, the current aggregate demand in the economy is more than the full employment level of output.It happens because of rise in money supply and availability of credit at easy terms.
In order to correct Excess Demand, the following measures may be adopted:
Decrease in Government Spending:
It is a part of Fiscal Policy. Government spends huge amount on infrastructural and administrative activities. To control the situation of excess demand, Government should reduce its expenditure to the maximum possible extent.More emphasis should be placed to reduce expenditure on defense and unproductive works as they rarely help in growth of a country. Decrease in Government spending will reduce the level of aggregate demand in the economy and helps to correct inflationary pressures in the economy.
Decrease in Availability of Credit:
The Central Bank (RBI) aims to reduce availability of credit in the economy through its ‘Monetary Policy’.
Two major instruments of Monetary Policy, used to decrease availability of credit are:
(i) Quantitative Instruments;
(ii) Qualitative Instruments.
(i) Quantitative Instruments: