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If farmers' loans are waived in India, how will it affect the aggregate demand in the economy?
1. Private consumption impact via increase in private sector net wealth
2. Public sector impact via changes in government expenditure/taxes
3. Crowding-out impact via higher borrowings by State Governments
4. Crowding-in impact via higher credit availability as bank NPAs fall
Select the correct answer using the code given below.
1, 2 and 3 only
1, 2, 3 and 4
3 and 4 only
1 and 2 only
First statement is correct as when farm loans get waived there will be more disposal income with farmres which will increse their private consumption.
Second statement is correct because governmnet expenditure will increase because of it need to spend money for waiving off farm debts.
Third statement is correct because in majority of cases it is the State Governmnet which announce farm waivers. For honouring the pledge for farm loan waiver state governmnet borrow huge amount from banks - crowding out others.
Fourth statement is correct, as with farm loan waived off bank's NPA got reduced which gives them space for borrowing to other sectors thus having a crowding in impact.
By: Atul Sambharia ProfileResourcesReport error
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