A. A situation in which fiscal policy constraints force the monetary authority to monetise deficits
B. Only the dominance of monetary policy
C. Complete independence of the central bank
D. The absence of any deficit
Answer: Option A
Solution (By JKSSB Mock Tests)
Fiscal dominance occurs when the fiscal authority’s need to finance deficits constrains or dictates the behaviour of the monetary authority, often leading to inflationary monetisation.
Explanation:
Seigniorage is the difference between the face value of money and the cost of producing it; it represents the real resource gain to the government from issuing currency.
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