* CHAHAL’s CSR INITIATIVE * Chahal Academy: A Socially Responsible Institute.
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Deficit Financing occurs when government expenditure exceeds revenue. Monetization of Deficit involves borrowing from the central bank to finance deficits, which may increase inflation.
Which of the following best describes deficit financing?
Correct Answer:
(A) When a government spends more than it earns, the difference being met through borrowing or printing new money.
Deficit financing occurs when a government's expenditure exceeds its revenue, and the shortfall is covered by borrowing or creating new money.
Ques: 2
What is monetisation of the government's fiscal deficit?
Correct Answer:
(B) When the central bank (RBI) purchases government securities to finance the government's spending.
Monetization of the fiscal deficit occurs when the central bank purchases government securities from the government, effectively providing it with new money to finance its spending.
Ques: 3
Which of the following is a potential negative consequence of deficit financing?
Correct Answer:
(C) Increased inflation.
Deficit financing can lead to increased inflation due to the increase in money supply in the economy.
Ques: 4
Which of the following is NOT a way to finance a budget deficit?
Correct Answer:
(D)
Decreasing government spending.
Decreasing government spending would actually reduce the budget deficit, not finance it.
Ques: 5
In India, who typically determines the level of deficit financing?
Correct Answer:
(B) The Ministry of Finance.
The Ministry of Finance typically formulates the fiscal policy in India, which includes decisions related to deficit financing.