ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Public Debt as a Mode of Financing Public Expenditure-Some Comments

Public Debt as a Mode of Financing Public Expenditure Some Comments Prabhat Patnaik This paper contests the view that selling government securities to buyers other than the Reserve Bank of India as a means of financing public expenditure is less inflationary than selling securities to the Reserve Bank. This view has recently received the support of even the Chakravarty Committee on the working of the monetary system. The first two sections of the paper focus primarily on the behaviour of banks and the processes of money creation and inflation, on the assumption of a given monetary policy-complex, notably a given spectrum of interest rates; Section III explores briefly the effect upon inflation and distribution of income of a rise in the interest rate on government securities.

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