Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below: Assertion (A): The government can reduce the deflationary gap by purc... Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below: Assertion (A): The government can reduce the deflationary gap by purchasing government securities in the open market. Reason (R): The Central Bank purchases government securities in the open market to increase the lending capacity of commercial banks. Options: A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). C. Assertion (A) is true, but Reason (R) is false. D. Assertion (A) is false, but Reason (R) is true.
Understand the Problem
The question presents an assertion about government policies to reduce deflation and a reason related to the Central Bank's actions in the open market. It's asking to evaluate the truth of both statements and their relationship, requiring knowledge of economic principles.
Answer
Option A
The final answer is A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Answer for screen readers
The final answer is A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
More Information
Purchasing government securities in the open market increases the money supply, which can help reduce a deflationary gap. By increasing banks' lending capacity, commercial activity is stimulated.
Tips
A common mistake is not understanding the role of central banks in open market operations. It's important to differentiate between reasons that are true but do not directly explain the assertion.
Sources
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