Public sector borrowing requirement (psbr), Managerial Economics

PUBLIC SECTOR BORROWING REQUIREMENT (PSBR)

Public Sector Borrowing Requirement (PSBR) is the amount which the government needs to borrow in any one year to finance an excess expenditure over income.

Effects of Government Borrowing on the Economy

If the government borrows from the general public, this may divert funds from more productive uses.

Firms also require finance and it may be that individuals and financial institutions prefer to lend to the government where the risk is less and possibly the returns are greater.  Thus the public sector may "crowd out" the private sector.   This is known as the "crowding out" effect.

A further harmful effect may occur.  Government borrowing will tend to raise the rate of interest.  This increase in interest rates will make certain capital investments less profitable resulting in a fall in investment, slower economic growth and a reduction in the competitiveness of he industries.

The increase in interest rates will also raise the cost of borrowing money for the purchase of houses and other goods hence an increase in the cost of living leading to inflationary wage pressure.

To avoid the above adverse effects, the government would borrow from the banking system the use of Treasury Bills; But this would raise eligible reserve assets in the banking system and thereby the money supply and the resultant inflation:  This puts the government in a dilemma.

The above pattern could be alleviated if the size of the PSBR was reduced.  This could be done by:

Reducing government expenditures and/or increasing taxation:  The first option is the trend in recent years but increased taxation is said to have the effect of reducing initiative and incentives.

Of late, employment has been put in the control of PSBR and ensuring that the growth of money did not exceed the growth of output.

Posted Date: 11/30/2012 4:28:49 AM | Location : United States







Related Discussions:- Public sector borrowing requirement (psbr), Assignment Help, Ask Question on Public sector borrowing requirement (psbr), Get Answer, Expert's Help, Public sector borrowing requirement (psbr) Discussions

Write discussion on Public sector borrowing requirement (psbr)
Your posts are moderated
Related Questions
Marginal Utility The extra utility derived from the consumption of one more unit of a good, the consumption of all other goods remaining unchanged. The hypothesis of dimin

Concept of Managerial Economics The discipline of managerial economics deals with characteristics of economics and tools of analysis that are used by business enterprises for dec

Open Market Operations Open market operations is another traditional or quantitative weapon at the disposal of central bank to control the volume of aggregate bank credit in t

Indifference curves In order to explain indifference curves, we will again make the simplifying assumption that the consumer buys two goods, x and y. The table below gives

what is the uses of production functns?

limitations of managerial ecomomics

Producers Equilibrium or Optimal Combination of Inputs  The analysis of production function has demonstrated that alternative combinations of factors of production that are tech

Determine the Specific Place of demand The demand should relate to a specific market as well. For instance, every year in the town of Dehradun, demand for school bags is 4,000


A  monopolist has two types of customers. There are 100 of Type A, who will every pay up to $10 for a single unit of the good, and 50 of Type B, who will every pay up to $8. Neithe