Read the following text carefully : According to a report issued by a research organisation, there is a sharp decline in the overall demand in the economy, particularly in the private consumption segment. This dip in the macro economic variables, highlights the urgent need for strategic actions to stimulate economic activities. On the basis of the given text and common understanding, explain the measure which the government may take to solve the indicated problem.

Question

Accepted Answer

**Analysis of sharp decline in overall demand:**

The decline in private consumption expenditure indicates **deficient demand** in the economy. This can be corrected through:

**Fiscal Policy Measures:**
- Increase government spending on infrastructure and social programmes
- Reduce income tax to boost disposable income
- Increase transfer payments (subsidies, unemployment benefits)

**Monetary Policy Measures:**
- Reduce repo rate to lower borrowing costs
- Reduce CRR to increase credit availability
- Purchase government securities (open market operations) to inject liquidity

These measures will increase aggregate demand, boost output, income and employment, and help the economy recover from the downturn.