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Budgetary Deficit leads to Decrease in Investment in Private Sector

In case of Budgetary deficit

Govt borrows by issuing bonds to public

These govt bonds compete with bonds of private companies

Hence, Private bonds get less subscription because of govt bonds

This leads to less money available to private sector for investment



In case of Budgetary deficit

Govt borrows money and use this money to make investment in infrastructure

This leads to increase in production and more income in economy

Hence, more money is available to private sectors also for Investment

Budget Deficit Leads To Decrease In Investment - Teachoo.JPG

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Question 1

In the following questions, select the correct answers:

Which statement is true for Budgetary Deficit?

  1. Government finances budgetary deficit by issuing bonds
  2. Government will use the borrowed money for investment purposes
  3. Both A and B
  4. Neither A nor B
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Budget Deficit Leads To Decrease In Investment YES In Budgetary Deficit Govt Borrows NO In Budgetary Deficit Govt Borrows Issues Bonds Govt uses Money To Invest In Infrastructure Bonds Compete With Private Company Bonds There is increase In Production And Income of Economy Less Money Available for Private Sector For Investment More Amt Available To Private Sector Also for Investment

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CA Maninder Singh is a Chartered Accountant for the past 13 years and a teacher from the past 17 years. He teaches Science, Economics, Accounting and English at Teachoo