Question
Which of the following statements are true regarding “Deficit Financing”?
Select the correct answer using the code given below:
- It raises aggregate demand in the economy
- It may result in inflation in the economy
- It is used as a developmental tool by developing countries
- It is done by issuing government bonds
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
Deficit financing is the budgetary situation where expenditure is higher than the receipts.
The expenditure revenue gap is financed by either printing of currency or through borrowing. Nowadays most governments both in the developed and developing world are having deficit budgets and these deficits are often financed through borrowing.
Hence the fiscal deficit is the ideal indicator of deficit financing. Deficit financing is very useful in developing countries like India because of revenue scarcity and development expenditure needs.
Since government spends more than receipts, it leads to an increase in demand and may result in inflation also.
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Answer: (d)
Deficit financing is the budgetary situation where expenditure is higher than the receipts.
The expenditure revenue gap is financed by either printing of currency or through borrowing. Nowadays most governments both in the developed and developing world are having deficit budgets and these deficits are often financed through borrowing.
Hence the fiscal deficit is the ideal indicator of deficit financing. Deficit financing is very useful in developing countries like India because of revenue scarcity and development expenditure needs.
Since government spends more than receipts, it leads to an increase in demand and may result in inflation also.
Was this answer helpful ?
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