What are the sources of government expenditure?

Correct option is A

The correct answer is (a) Deficit financing and increase in taxes, expansion of debt
Explanation:
• Government expenditure refers to the money spent by the public sector on the acquisition of goods and provision of services.
• To fund this expenditure, the government relies on several sources, primarily Taxation (direct and indirect taxes).
• If revenue falls short of expenditure, the government resorts to Deficit Financing, which involves borrowing from the central bank or issuing more currency.
• Expansion of debt (Public Debt) involves borrowing from internal sources (like the public or banks) or external sources (like the World Bank or foreign governments) to meet spending needs.
Information Booster:
• Government expenditure is categorized into Revenue Expenditure (day-to-day running) and Capital Expenditure (asset creation).
• Deficit financing can lead to inflation if not managed properly, as it increases the money supply in the economy.
Additional Knowledge:
(b) Increase in interest rate (Option b):
• An increase in interest rates is a tool of Monetary Policy used by the Central Bank to control inflation, not a source of expenditure funding.
(d) Change in political environment (Option d):
• While political stability affects economic planning, it is a qualitative factor and not a financial source for funding government spending.