Statement I (A) is wrong. Price policy (e.g., minimum support prices, price controls) is concerned with regulating the prices of goods and services, primarily to control inflation or support producers/consumers. Controlling the fiscal deficit (the difference between government spending and revenue) is the domain of fiscal policy, which involves decisions about taxation and government expenditure. Statement II (R) is correct. A high fiscal deficit, especially if financed by borrowing from the central bank (monetization) or from the public which crowds out private investment, can lead to an increase in the money supply or aggregate demand, putting upward pressure on prices and leading to inflation.
Consider the following statement : Statement-I: Price policy aims at controlling fiscal deficit. Statement-II: Fiscal deficit leads to inflationary pressure. Which is correct answer?
Asked in TNPSC CS Prelims 2014 · Topic: Fiscal Policy & Revenue (Impact of Fiscal Policy on Income Distribution, Inflation, and Employment)
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