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Is fisical deficit inflationary ?? explain …

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Is fisical deficit inflationary ?? explain in easy way.

Posted by Ashish Kumar Pandey 5 years, 5 months ago

CBSE > Class 12 > Economics

1 answers

Sneha Manchanda 5 years, 5 months ago

Yes ashish for sure fiscal deficit is inflationary. See there is a deficit but govt.'s expenditures are not necessarily stop. So to fulfil the expenditures govt. borrows money and in the form of expenditures it goes into the market . For example govt takes a loan of ₹1000 and use it to pay salaries to teachers it means that loan goes into the market in the form of salaries and increases the money supply and at the same time supply of goods and services will remain constant. In return which will increase demand of goods and services due to increase in purchasing power and this is the reason behind increasing rates of those things , hence causes inflation. Hoping you have understood.?

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