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      Question

      According to the Golden Rule of Public Finance,

      government borrowing is justified primarily for:
      A Financing current revenue expenditure such as salaries and subsidies to maintain public services without raising taxes Correct Answer Incorrect Answer
      B Financing capital expenditure (public investment) that generates future returns — ensuring the debt burden is matched by productive assets that benefit future generations who service the debt Correct Answer Incorrect Answer
      C Stabilising the economy during recessions through deficit spending, regardless of the nature of expenditure Correct Answer Incorrect Answer
      D Keeping the fiscal deficit below 3% of GDP as mandated by the FRBM Act Correct Answer Incorrect Answer

      Solution

      Golden Rule: “Over the economic cycle, borrow only to invest, not to fund current spending.” Indian context: FRBM targets elimination of revenue deficit (not total deficit) precisely for this reason. Option (C) describes Keynesian functional finance, not the Golden Rule.

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