A. A situation in which fiscal policy constraints force the monetary authority to monetise deficits
B. The absence of any deficit
C. Only the dominance of monetary policy
D. Complete independence of the central bank
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:
The Indian economy continues to face structural challenges such as regional imbalances, unemployment and underemployment, and a large informal sector.
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