Question

1. “Current estimates suggest that the combined fiscal deficit of the central and the state governments could cross 10% of the GDP during this year from the current 7-7.5%. As the governments borrow more to finance their fiscal deficits and accumulate more debt, interest rates tend to go up. The RBI is trying to drive down interest rates….” Mint, 2020 June. a. Which kind of government borrowing is being referred here and why does interest rate tend to go up as governments borrow? Explain. b. What are the other ways the government can borrow? c. Why and how is RBI trying to drive down interest rates during the recent past?

Answer 1

Answer:

Explanation:ombined fiscal deficit of the central and the state governments could cross 10% of the GDP during this yeto finance their https://brainly.in/fiscal deficits and accumulate more debt, inter

Answer 2

Explanation:

This system is called Internal borrowing where the state borrows money from its central bank regulatory.

The interest rate goes up since the central bank needs some mechanism to recover the money that it has given to state in the form of money.

To drive more money, state must try to pull international investors and people working abroad to send dollars to state so that its reserve gets increased. This will also help in lowering the interest rate