1) which if the following developments can occur in an economy due to deficit financing?
Rise in inflation
decrease in public debt
Increase in money supply
Improvement in current account deficit

Solution :-

Deficit financing refers to the government borrowings from the Central Bank in the form of new currency notes. Deficit financing increases the circulation of money in the economy. 

1) Rise in Inflation - Deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and with effect of that it increases aggregate demand and leads to large the danger of inflation.
2) Decrease in public debt - Governments borrow money to pay for budget deficits, and whenever a government borrows money, this adds to its national debt. Due to deficit financing, there will be increase in public debt.
3) Increase in money supply - When there is a budget deficit, government finds ways of financing the deficit through borrowing from commercial and merchant banks. This causes increase in the supply of money. 
4) Improvement in current account deficit - As the value of its currency declines, the value of the foreign assets rise. That further reduces the current account deficit.

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