What are Budgetary Deficit?

What are Budgetary Deficit?

We have already studied that

Budgetary Deficit is excess of Expenditure over Receipts

Example

Revenue Deficit, Fiscal Deficit, Primary Deficit

How are Budgetary Deficit Financed

To fill the gap between Expenditure and Receipts, Government normally does one of the following

Taxation

Govt increases its Taxes (This increases Govt Receipts)

Borrowing (Debt)

Govt takes loans from Public or Foreign Institutions

This increases its debt and int liability

Printing Money

Govt asks RBI to print money

When Govt wants to print a currency, it gives securities to the RBI (called Govt Security) against which RBI issues currency

Which of above 3 methods is mostly used by Govt?

Borrowing Method is mainly used by Govt

Govt increases its debt by raising bonds on which it has to pay interest

If govt continues to borrow every year, it has to pay more and more interest on it

To Pay this int, govt has to take more loan and this circle continues

NCERT Question

Question 11

Explain the relation between government deficit and government debt.

Other Books

Question 1

In the following questions, select the correct answers:

Budget deficit means:

1. Total Expenditure - Total Receipts
2. Capital Expenditure - Capital Receipts
3. Total Expenditure - Total Receipts (excluding borrowings)
4. Total Expenditure - Revenue receipts