Deficit financing occurs when a government's expenditure exceeds its revenue, and it bridges this gap typically by borrowing from the market (domestic or international) or by printing new money (or more commonly, through the central bank buying government bonds). Both methods generally lead to an increase in the total money circulating in the economy. Borrowing from the public uses existing money, but borrowing from the central bank or creating new reserves increases the monetary base.
The Effect of deficit financing is
Asked in TNPSC CS Prelims 2024 · Topic: Fiscal Policy & Revenue (Fiscal Deficits: Concepts, measures, and financing of deficits)
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