The correct answer is Option 1 : a, b and c
All the statements are true.
a) By borrowing, the government transfers the burden of reduced consumption on future generations. This is correct. This is because it borrows by issuing bonds to the people living at present but may decide to pay off the bonds some twenty years later by raising taxes. These may be levied on the young population that have just entered the work force, whose disposable income will go down and hence consumption. Thus, national savings, it was argued, would fall. Also, government borrowing from the people reduces the savings available to the private sector. To the extent that this reduces capital formation and growth, debt acts as a ‘burden’ on future generations.
b) The sale of shares increased the receipts of government causing a reduction in fiscal deficits. This is also true. The sale of Public Sector Undertaking (PSU) shares can help in reducing the fiscal deficit under certain conditions. When a government sells shares of PSUs, it receives revenue from the sale. This revenue can be used to finance government expenditures, reduce debt, or cover budgetary shortfalls, thus potentially reducing the fiscal deficit.
c) The same fiscal measures can give rise to a large or small deficit, depending on the state of the economy. Yes, the statement also holds true. Fiscal measures, such as changes in taxation, government spending, or borrowing, can have different impacts on the fiscal deficit depending on the state of the economy. For example, during an economic downturn, tax revenues may decrease and government spending on social welfare programs may increase, leading to a larger deficit even if fiscal measures remain unchanged. For example: If an economy experiences a recession and GDP falls, tax revenues falls because lower taxes are paid due to less income. This means that the deficit increases in a recession and falls in a boom, even with no change in fiscal policy. |
