which of the following measures of meeting deficit in budget, leads to an increase inmoney supply in the economy:(a). Disinvestment (b). Loan from world Bank (C).Deficit financing (d).Allof these
Question
which of the following measures of meeting deficit in budget, leads to an increase inmoney supply in the economy:(a). Disinvestment (b). Loan from world Bank (C).Deficit financing (d).Allof these
Solution
To determine which measure leads to an increase in money supply in the economy, let's analyze each option:
(a) Disinvestment: Disinvestment refers to the sale or liquidation of government assets. This measure does not directly lead to an increase in money supply in the economy. In fact, it usually reduces the money supply as funds are withdrawn from the economy.
(b) Loan from World Bank: Taking a loan from the World Bank does not directly increase the money supply in the economy. It is a form of external borrowing that increases the country's debt, but it does not inject new money into the economy.
(c) Deficit financing: Deficit financing occurs when a government spends more money than it collects in revenue, resulting in a budget deficit. To cover this deficit, the government may resort to borrowing from the central bank or issuing government bonds. This measure does lead to an increase in money supply in the economy, as new money is created to finance the deficit.
(d) All of these: Since both disinvestment and loans from the World Bank do not directly increase the money supply, the correct answer is not "All of these." The correct answer is (c) Deficit financing.
Therefore, the measure that leads to an increase in money supply in the economy is deficit financing.
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