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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
Counterview
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
NCERT Questions
No questions in this part
Other Books
Question 1
In the following questions, select the correct answers:
Which statement is true for Budgetary Deficit?
- Government finances budgetary deficit by issuing bonds
- Government will use the borrowed money for investment purposes
- Both A and B
- Neither A nor B
C. Both A and B
Explanation
Government will issues bonds to public to raise money which will be used to finance the budgetary deficit
Then, it will make new investments.
