What is meant by Margin Requirement? How does the Central Bank use this measure to control deflationary conditions in an economy?

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Solution

Margin requirement refers to the difference between the current value of security offered for loan and the value of loan granted. During deficient demand or deflation, the central bank decreases the margin in order to increase the credit creation capacity of the commercial bank and as a result, the money supply in an economy gets increased and the deficient demand or deflationary gap is combated.

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