Q. Consider the following steps:
Banking Department gets currency from the Issue Department
Government puts the currency in circulation
Central Government Incurs a deficit in its Budget
Government Sells Treasury Bills to Banking Department of RBI
Which among the following is the correct order of the above steps?
Answer: 3 4 1 2
Notes: First, the government incurs a budget deficit (spends more than it earns from taxes and other sources). To cover this gap, it sells treasury bills to the Banking Department of RBI to raise money. The Banking Department then draws an equivalent amount of currency from the Issue Department of RBI. Finally, the government uses this currency to meet its expenses and puts it into circulation. So, the steps happen in the sequence - 3, 4, 1 and 2.
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