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Fiscal-Monetary Relations
What is 'fiscal dominance' in the context of monetary policy?
Fiscal dominance occurs when large fiscal deficits force the central bank to monetise government debt, undermining its ability to control inflation and impairing its price stability mandate.
What was the primary consequence of automatic monetization on India's money supply?
It continuously expanded money supply without any sterilization mechanism.
How does the central bank monetise government debt?
The central bank monetises government debt by purchasing government securities, thereby injecting money into the economy and financing the fiscal deficit through money creation.
What are Ad hoc Treasury Bills in the context of Indian fiscal-monetary history?
Short-term instruments RBI rolled over indefinitely to finance government deficits.
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