General Knowledge - Indian Economy - Discussion

When public expenditure exceeds revenue, it creates a gap of instability in the economy. So govt in order to mitigate this instability, uses one of the methods of fiscal policy like deficit financing, which implies printing of domestic currency.

What is simple meaning of deficit?

Deficit financing means printing new additional currency to finance public expenditure. This is done when govt does not have funds and instead of taking loan govt finances itself by printing additional currency. It makes value of currency down in foreign market but saves from paying interest to any body but printing of additional currency can be done to some extent only.

Both the above answers are correct but deficit financing is the process through which the deficit gap arising out of excess of expenditure over revenue is solved but the measure here is to do that is printing of new currency notes.

The measures which are undertaken to overcome deficit are known as deficit financing. And the measure is printing new currency notes.

When the public expenditure exceeds the public revenue. At that time a deficit gap is created. And the measures that are undertaken are known as the deficit financing.