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Assuming that there exists a situation of excess demand in an economy leading to an inflationary gap. 

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Assuming that there exists a situation of excess demand in an economy leading to an inflationary gap. 

a) What is the impact of excess demand in the economy 

b) Explain monetary measures that can help to control this situation.

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a) Effect on price - Increase in the general price level, Inflationary gap, 

Effect on output- no change, 

Effect on employment no change.

b) Increase repo rate

increase bank rate

open market operations

increase CRR

increase reverse repo rate.

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