Question

What is the primary reason for resorting to deficit financing?

• A. To increase government expenditure on social welfare.
• B. To attract foreign investment into the economy.
• C. To reduce the national debt.
• D. To provide money for increasing transactions due to rising incomes and growing monetization.

Answer 1

Answer:

D. To provide money for increasing transactions due to rising incomes and growing monetization.

• It may also be necessary to resort to deficit financing primarily to provide money for increasing transactions in the wake of rising incomes and growing monetisation of the economy.

• But at the same time care should be taken to ensure that it does not become inflationary.

• Similarly external assistance may be necessary as long as domestic resources do not prove adequate to finance the developmental programmes