Arrange the following statements in sequential order.
(A) Rise in prices.
(B) Central Bank increases margin requirement.
(C) Situation of excess demand in the economy.
(D) Aggregate demand falls.
Choose the correct answer from the options given below:
Arrange the following statements in sequential order.
(A) Rise in prices.
(B) Central Bank increases margin requirement.
(C) Situation of excess demand in the economy.
(D) Aggregate demand falls.
Choose the correct answer from the options given below:
Solution
Option 2: (C), (A), (B), (D) -> This represents the correct economic sequence. First, excess demand in the economy (C) creates inflationary pressure. This leads to a rise in prices (A) as demand exceeds supply. To control this inflation, the Central Bank intervenes by increasing margin requirements (B), which is a contractionary monetary policy tool that makes credit more expensive and less accessible. Finally, this policy action results in aggregate demand falling (D) as borrowing becomes costlier and purchasing power is constrained. This sequential chain demonstrates how central banks use monetary policy tools to manage demand-pull inflation. -> correct
Related questions:
2023: 11 June Shift 3
2022: 15 July Shift 2
2023: 11 June Shift 3