explain the role of bank rate and reverse repo rate to correct the situation of excess demand brainly
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Class 12
ECONOMICS
Excess Demand And Deficient Dement
What is excess demand? Explain the role of Reverse Repo Rate in removing it.
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Excess demand refers to the situation when aggregate demand (AD) is more than the aggregate supply (AS) corresponding to full employment level of output in the economy. It is the excess of anticipated expenditure over the value of full employment output. Excess demand gives rise to an inflationary gap. Reverse Repo Rate-Reverse Repo Rate is the rate of interest at which Commercial Banks can park their surplus funds with the Central Bank, for short period. If Reverse Repo Rate is increased, then it is followed by increase in market rate of interest. Accordingly, cost of credit also increases. It will reduce flow of credit as desired.