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Question : When a government borrows money to finance its expenditures, it is known as:

Option 1: Deficit financing

 

Option 2: Balanced budget financing
 

Option 3: Surplus financing

 

Option 4: None of the above


Team Careers360 25th Jan, 2024
Answer (1)
Team Careers360 26th Jan, 2024

Correct Answer: Deficit financing


Solution : The correct answer is (a) Deficit financing.

When a government borrows money to finance its expenditures, it is referred to as deficit financing. Deficit financing occurs when the government's total expenditures exceed its total revenues, leading to a budget deficit. To cover this deficit, the government borrows money from various sources such as issuing bonds, obtaining loans from domestic or foreign entities, or utilizing other forms of debt.

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