CBSE 2025, Set 2

Question

Read the following statements carefully:

Statement 1: During deflationary gap, the Central Bank of a country may increase the repo rate.
Statement 2: The government can reduce the deflationary gap by purchasing Government Securities (G-Sec) in the open market.

In the light of the given statements, choose the correct option from the following: A). Statement 1 is true and Statement 2 is false. B). Statement 1 is false and Statement 2 is true. C). Both Statements 1 and 2 are true. D). Both Statements 1 and 2 are false.

Edvaya · Accepted Answer

The correct answer is Both Statements 1 and 2 are false.. (D) Both Statements 1 and 2 are false. **Explanation:** Statement 1 is false because during a deflationary gap, the Central Bank *decreases* the repo rate to encourage borrowing and stimulate Aggregate Demand. Statement 2 is false because it is the *Central Bank*, not the government, that conducts Open Market Operations (buying/selling G-Secs).

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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