Question

Define deficit financing.

Answer 1

According to the Indian Planning Commission, “the term deficit financing is used to denote the direct addition to gross national expenditures through budget deficit, whether the deficits are n revenue or of capital account. The essence of such a policy lies, therefore, in government spending in excess of the revenue it receives in the shape of taxes, earnings of state enterprises, loans from the public, deposits, funds, and other miscellaneous sources. The government may cover either by running down its accumulated balances by borrowing from the banking system (mainly from the Central Bank of the country and thus creating new money.”