Q. Which of the following statements correctly describes Deficit Financing in the context of India’s fiscal policy?
1.It involves borrowing from the Reserve Bank of India.
2.It is undertaken only when the government has surplus revenue.
3.It may involve issuance of treasury bills and use of cash balances.
Select the correct answer using the code given below:
Answer: B
Notes:
Explanation:
- Borrowing from the RBI is a key component of deficit financing.
- Deficit financing is done when there is a shortfall, not surplus.
- Treasury bills and accumulated cash balances are tools of deficit financing.
Source: Indian Economy (NCERT)
