WBCS.LIVE practice question

"Deficit Financing" in India generally means that the government borrows money from?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. World Bank
  2. International Monetary Fund
  3. Reserve Bank of India
  4. Commercial Banks

Correct answer and explanation

Correct answer: Reserve Bank of India

Explanation: āœ… Correct Answer: C) Reserve Bank of India šŸ“š Explanation: Deficit financing is a practice where the government spends more money than it receives as revenue, and the gap is bridged by borrowing from the central bank (RBI) or issuing new currency. While it can help stimulate economic growth during a recession, excessive deficit financing can lead to high inflation. In modern times, the government mostly relies on market borrowings to fund the deficit.