Which of the following statements is are true related to fiscal deficit 1 n...........

Economic Affairs Public Finance and Debt Management

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Which of the following statements is/are true related to fiscal deficit?

1. It shows the excess of total expenditure over total receipts excluding borrowings.

2. High fiscal deficit crowds out the private investment in normal times.

3. The deficit can be financed through borrowing from the central bank.

Select the correct answer using the codes given below

1 and 2

2 only

2 and 3

All of the above

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Explanation:

Fiscal deficit shows the excess of total expenditure over total receipts excluding borrowings. High fiscal deficit results in high government borrowing, lower the amount of available money to be borrowed by private investors ,increasing the interest rates and lowering the private investments. Government, sometimes borrows from Reserve Bank of India (RBI) to meet its fiscal deficit. RBI prints new currency to meet the deficit requirements. It increases the money supplying the economy and creates inflationary pressure.