CBSE 2025, Set 1

Question

Read the following statements carefully:

Statement 1: The government may reduce the repo rate, to control deflationary gap prevailing in the economy.
Statement 2: The government may reduce the deflationary gap, by selling off 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 it is the **Central Bank (RBI)** that reduces the repo rate, not the government. Furthermore, Statement 2 is false because selling government securities in the open market reduces the money supply in the economy, which would further reduce Aggregate Demand and *increase* the deflationary gap.

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Economics > Introductory Macroeconomics > Money And Banking

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