Advantages of Deficit Financing
Govt. uses borrowed money for increase in social and economic infrastructure such as schools, hospitals, power projects, dams, canals and a host of other development programs, which helps in the improvement and productivity of various sectors of economy. This expenditure of Govt. increases money supply, which increases price level in the economy. Increases in prices, increases profit margins of industrialists, who in order to gain profit further accelerate their investment. New factories are established and capital formation increases. Govt. expenditure and private capital formation creates more jobs opportunities in the economy. Increase in employment increases demand for goods and services and on the other side it fosters saving as well, which again is utilized for further investment. Thus cycle of progress and prosperity keeps on moving ahead.