Fiscal deficit monetary policy framework from "summary" of Indian Economy: Performance and Policies by Uma Kapila
Fiscal deficit is the excess of total expenditure over total receipts excluding borrowings during a particular period. It reflects the borrowing requirements of the government to meet its expenditure. The fiscal deficit has a direct impact on the money supply in the economy. When the government resorts to borrowing to finance its spending, it injects money into the system. This excess liquidity can lead to inflationary pressures in the economy. Monetary policy, on the other hand, refers to the measures taken by the central bank to control the supply of money in the economy. One of the key objectives of monetary policy is to maintain price stability. In the context of fiscal deficit, monetary policy plays a crucial role in managing the liquidity in the economy. The central bank can use various tools such as open market operations, reserve requirements, and policy interest rates to control the money supply. The fiscal deficit monetary policy framework refers to the coordination between fiscal an...
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