Multiple choice

Which of the following is not a method to adopt deficit financing?

  1. Issuing new currency notes by government

  2. Taking the accumulated cash reserve deposited in Reserve Bank of India

  3. Borrowing from Reserve Bank of India

  4. Increasing the bank rate
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Increasing the bank rate is not a method to adopt deficit financing. Increasing the bank rate is an instrument of monetary policy, not the method of deficit financing. The bank rate is increased and hence the interest on loan taken by common public is also increased. Thus, public is discouraged to take loan. Hence, it reduces the purchasing power. This policy is adopted to leverage pricing mechanism.

Keep practicing — related questions