Multiple choice

Which of the following is not a precaution to be taken in the use of deficit financing?

  1. To ensure corresponding increase in the supply of goods

  2. To concentrate on quick yielding projects

  3. To ensure rise in wages of labourers

  4. To ensure decrease in tax rates
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

It is a precaution that is not to be taken in use of deficit financing. In the deficit financing, there is extra purchasing power in the hands of people as there is issue of currency. If the tax rates are decreased, it will leave even more purchasing power. Hence, tax rate is not to be decreased at the time of deficit financing so that the prices do not increase further.

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