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

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Fiscal Deficits and the Interest Rate

There is no reason why larger borrowing by the government need raise interest rates in the economy. Is it a case of prejudice in favour of "small" government that is the reason for the continued currency of this view? Or even if the expressed view is due to a desire to keep foreign institutional investors happy, should it not be better to control speculative capital directly instead of recommending deflationary fiscal policies in the midst of a recession?

lead to an increase in interest rates. Believing otherwise and cutting government expenditure or not raising it enough in the midst of the worst world recession in recent times can only make economic conditions worse and impose unnecessary hardship on the people of the country.

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