Monetized deficit, Deficit Financing#Complete_UPSC_Courses #Download_ZIAIAS_APP#ZIA_SAFIR_#JOICY JOY

Monetized deficit, Deficit Financing#Complete_UPSC_Courses #Download_ZIAIAS_APP#ZIA_SAFIR_#JOICY JOY

Now sixth concept monetized deficit okay monetized deficit means it’s actually printing of money printing of currency only so in another words what you can say this monetized deficit you’re printing currency deficit financing right so this is nothing but deficit financing right and the impact of deficit financing i’ve told you last session that it won’t create

Any asset rather it transfer asset only that we have discussed already uh with example i have told you how deficit financing when government is printing more money it uh the the resources will be transferred from private to public i’ve shown you with example so just right there it measures borrowings of the government from the central bank borrowings of the

Government from the central bank during a financial year from the central bank during a financial year so when you’re borrowing from the when you’re borrowing from the central bank that is what you call as deficit financing mostly that are they will print currency and will give but we have told you it has been stopped uh as per washington consensus also when

We discussed about the first generation reform and then as per fr bma act also okay just right that is increasing net central bank credit to the government that is increasing net central bank credit to the government one more line it increases the quantity of reserve money m0 it increases the quantity of reserve money just write this anjali and sahara we will

See that later in case if not possible i have updated the video on money system monetary system there you will get all these concepts m0 m1 m2 etc so it increases the quantity of reserve money means printing of currency in bracket you can write printing of currency so m0 increase means what m is the money multiplier m0 is the reserve money this is what money

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Supply right so money supply will increase when money is printed money supply will increase because printed money government is borrowing and ultimately coming to the market so money supply will increase means what the demand will increase the prices will increase inflation will be there so i’ve told you printing of currency is highly inflationary many a time

Does i have told you this okay so increase money supply by multiple magnitude multiple magnitude means what is the value of m m value is 5.6 so government is printing 100 rupee okay what is the impact of this hundred rupee 560 rupees actually the impact in the market so that will create the problem this is how demonic not monetized deficit the deficit financing

Let’s say i’ve told you this example same example many times in the uh in the market let’s suppose total thousand rupees there and in the market total hundred goods are there so here if you see this thousand rupee is chasing hundred goods so one good will cost 10 rupee so let’s say in the public the government is 300 and from private it is 700 rupees there out

Of this thousand so if one good is 10 rupee the public government can buy how much 30 goods and private can buy how much 70 goods so total 100 goods have been sold like this now imagine government went for uh printing of currency so let’s say 400 rupee extra printed so now in the market total 1400 this 1400 is chasing hundred so one good now cost 14 rupee okay

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Now what will happen this 300 in the government will become 4 700 because of this 400 extra and the 700 will remain at 700 okay so government can buy 50 now and private also can buy 50. so what actually happened here ultimately 100 could remain 100 good there is no change in production so there is no resource created no resource created what happened transfer

Of resource from private to public 20 from here taken out and so that is why reduction of 20 and given to state the government that is by increase of 20. so only transfer of resources actually happening so you may say that you can print money and you can start hospitals schools etc but ultimately what is actually happening when you’re printing the money it is

Actually resources transferred from private to public it would have been there in the private only may not be in health or education but in some other way okay but now it is going to be invested as health education etc you may question that but this is actually what going to happen resources are not created it is transferred now just write deficit financing

There are three components it is similar to monetize deficit only but technically when you talk about deficit financing just right deficit financing deficit financing just write three condition or three components there is only a minor difference okay so it is same as that of monetized deficit minor difference and uh two three components are not significant

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So three components first one government borrowings from rba government borrowing from rba what is this this is what monetized deficit so which one is broader deficit financing is broader and monetized deficit is actually part of deficit financing but second and third is not significant so actually deficit financing is equal to uh government borrowing or the

Monetized deficit that’s why i have told you monetized deficit is nothing but deficit financing only second printing of rupee one and small denomination coins by government printing of rupee one and small denomination coin by government of india third one net withdrawal of cash by the government net withdrawal of cash by government from its account with rbi

So government’s account every government state government central government have to keep account with rbi so from that the net withdrawal of cash net withdrawal of cash by the government from rba so see these two are not important significant so that’s why i’ve told you deficit financing means all these three are part of deficit financing but these two are used

Uh simon you know as synonymous okay so both are used as uh synonyms or synonymously it is used both are almost same only this is the technical difference if i ask you what is deficit financing you should be in a position to tell that these three components and in that uh monetized deficit is actually one of the component so deficit financing is broader yeah

Okay uh can we stop now we’ll continue tomorrow tomorrow we will discuss about public expenditures very important topic last year also there was a question

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Monetized deficit, Deficit Financing#Complete_UPSC_Courses #Download_ZIAIAS_APP#ZIA_SAFIR_#JOICY JOY By ziaIAS