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Directions: Read the following case study and answer the questions.
Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.
Q. Budgetary deficits can be financed by
  • a)
    taxation
  • b)
    borrowings
  • c)
    printing money
  • d)
    All of the above
Correct answer is option 'D'. Can you explain this answer?
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Directions: Read the following case study and answer the questions.Bud...
Deficit is the excess of expenditure over receipts and any of the above steps can be taken to fill this gap.
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Directions: Read the following case study and answer the questions.Bud...
Explanation:

Budgetary deficits:
- Budgetary deficits occur when a government's expenditures exceed its revenues.
- In other words, it means that the government is spending more money than it is earning through taxes and other sources of revenue.

Financing budgetary deficits:
- Budgetary deficits can be financed through three main methods: taxation, borrowing, and printing money.

Taxation:
- Taxation involves levying taxes on individuals and businesses to generate revenue for the government.
- Taxes can be collected in various forms, such as income tax, sales tax, property tax, etc.
- By increasing tax rates or introducing new taxes, the government can collect more revenue to cover budgetary deficits.

Borrowings:
- Borrowing involves the government issuing bonds or taking loans from individuals, financial institutions, or other countries.
- When the government borrows money, it agrees to pay it back with interest over a specified period.
- Governments often rely on borrowing to finance budgetary deficits, as it provides immediate funds without the need for immediate taxation or printing of money.

Printing money:
- Printing money refers to the process of increasing the money supply by the central bank.
- When the government prints money, it essentially creates new money out of thin air.
- This method is often used as a last resort and can lead to inflation if done excessively.

All of the above:
- The correct answer is option 'D', which states that budgetary deficits can be financed by taxation, borrowing, and printing money.
- Governments have the flexibility to choose one or a combination of these methods to finance their deficits.
- Each method has its own implications and consequences.
- Taxation directly affects individuals and businesses by reducing their disposable income and profitability.
- Borrowing increases government debt, leading to interest payments and potential crowding out of private sector investment.
- Printing money can lead to inflation and erosion of purchasing power.

Conclusion:
- In summary, governments have various options to finance budgetary deficits, including taxation, borrowing, and printing money.
- Each method has its own advantages and disadvantages, and governments need to carefully consider the implications of their choices on the economy and future generations.
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Directions: Read the following case study and answer the questions.Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.Q.Budgetary deficits can be financed bya)taxationb)borrowingsc)printing moneyd)All of the aboveCorrect answer is option 'D'. Can you explain this answer?
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Directions: Read the following case study and answer the questions.Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.Q.Budgetary deficits can be financed bya)taxationb)borrowingsc)printing moneyd)All of the aboveCorrect answer is option 'D'. Can you explain this answer? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Directions: Read the following case study and answer the questions.Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.Q.Budgetary deficits can be financed bya)taxationb)borrowingsc)printing moneyd)All of the aboveCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Directions: Read the following case study and answer the questions.Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.Q.Budgetary deficits can be financed bya)taxationb)borrowingsc)printing moneyd)All of the aboveCorrect answer is option 'D'. Can you explain this answer?.
Solutions for Directions: Read the following case study and answer the questions.Budgetary deficits must be financed by either taxation, borrowing or printing money. Governments have mostly relied on borrowing, giving rise to what is called government debt. If the government continues to borrow year after year, then interest payments increase and these further increase the debt. Also, government borrowing from the people reduces the savings available to the private sector. This reduces capital formation and growth. These debts increases the burden on future generations as the debts raised today are required to be paid off in future.Q.Budgetary deficits can be financed bya)taxationb)borrowingsc)printing moneyd)All of the aboveCorrect answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for Class 12. Download more important topics, notes, lectures and mock test series for Class 12 Exam by signing up for free.
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