Budgetary Deficit leads to Decrease in Investment

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Budgetary Deficit leads to Decrease in Investment in Private Sector

In case of Budgetary deficit

Govt borrows by issuing bonds to public

These govt bonds compete with bonds of private companies

Hence, Private bonds get less subscription because of govt bonds

This leads to less money available to private sector for investment

Counterview

In case of Budgetary deficit

Govt borrows money and use this money to make investment in infrastructure

This leads to increase in production and more income in economy

Hence, more money is available to private sectors also for Investment

NCERT Questions

No questions in this part

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Question 1

In the following questions, select the correct answers:

Which statement is true for Budgetary Deficit?

1. Government finances budgetary deficit by issuing bonds
2. Government will use the borrowed money for investment purposes
3. Both A and B
4. Neither A nor B