BANKING AFFAIRS

Detailed explanation-1: -When a government borrows from the RBI or prints money to fill the gap between its income and expenditure, it is called deficit financing. Q. means financing of a budget deficit by borrowing from the central bank or printing more money.

Detailed explanation-2: -Deficit financing means generating funds to finance the deficit which results from an excess of expenditure over revenue. The gap is covered by borrowing from the public by the sale of bonds or by printing new money.

Detailed explanation-3: -In India, deficit financing is said to occur when the union government’s current budget deficit is covered by the withdrawal of the government’s cash balance and by borrowing money from the Reserve Bank of India.

Detailed explanation-4: -Answer: The correct option is (c). As you see, both (a) borrowing from RBI and (b) borrowing from the public are ways in which a deficit in the budget can be financed.

Detailed explanation-5: -The correct answer is John Maynard Keynes. He organized the idea of deficit financing as compensatory spending meant to solve the problem of unemployment and depression. Hence, Option 3 is correct.