Question
Would you advocate expansion or contraction of credit supply in a situation of excess demand?
or
What happens to an economy when credit availability is restricted and credit made costlier?
Solution
Excess demand and credit supply
In a situation of excess demand, credit supply should be curtailed/contracted to control inflation. When credit availability is restricted and credit is made costlier, the state of excess demand in the economy is controlled to a great extent.
In a situation of excess demand, credit supply should be curtailed/contracted to control inflation. When credit availability is restricted and credit is made costlier, the state of excess demand in the economy is controlled to a great extent.
