How does use of capital receipts by the govt for meeting extra consumption expenditure leads to inflation in the economy?

Dear student, 
Capital receipts refers to those receipts of the government that lead to a reduction in the assets of the government and create a liability for it. In this way resorting to capital receipts for meeting the extra consumption expenditure implies that the government is resorting to borrowings.  One of the important source of borrowings for the government is from the central bank through deficit financing (printing new currency notes). This increases the circulation of money in the economy and so causes inflation. 

  • 10
What are you looking for?