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    Question

    The primary difference between 'Public Debt' and

    'Deficit Financing' is that public debt:
    A Always leads to inflation. Correct Answer Incorrect Answer
    B Involves borrowing from the public or abroad, not necessarily money creation. Correct Answer Incorrect Answer
    C Is only used for capital expenditure. Correct Answer Incorrect Answer
    D Is a revenue receipt for the government. Correct Answer Incorrect Answer
    E Is always external borrowing. Correct Answer Incorrect Answer

    Solution

      • Public Debt  refers to the total outstanding borrowings of a government. It is a  stock  concept. This borrowing can be from  the domestic public  (via bonds), from the  central bank , or from  foreign entities . Borrowing from the public (non-bank) is generally non-inflationary.
      • Deficit Financing  in a narrower, traditional sense refers specifically to covering a fiscal deficit by  borrowing from the central bank  (RBI in India), which effectively leads to the  printing of new money . This is often directly inflationary.
        Therefore, the key distinction is that public debt encompasses all borrowing, while deficit financing is a specific (and potentially inflationary) method of covering a deficit.

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