{"id":90322,"date":"2025-06-01T10:26:19","date_gmt":"2025-06-01T10:26:19","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=90322"},"modified":"2025-06-01T10:26:19","modified_gmt":"2025-06-01T10:26:19","slug":"if-farmers-loans-are-waived-in-india-how-will-it-affect-the-aggregat","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/if-farmers-loans-are-waived-in-india-how-will-it-affect-the-aggregat\/","title":{"rendered":"If farmers\u2019 loans are waived in India, how will it affect the aggregat"},"content":{"rendered":"

If farmers\u2019 loans are waived in India, how will it affect the aggregate demand in the economy?
\n1. Private consumption impact via increase in private sector net wealth
\n2. Public sector impact via changes in government expenditure\/taxes
\n3. Crowding-out impact via higher borrowing by State Governments
\n4. Crowding-in impact via higher credit availability as bank NPAs fall
\nSelect the correct answer using the code given below.<\/p>\n

[amp_mcq option1=”1, 2 and 3 only” option2=”1, 2, 3 and 4″ option3=”3 and 4 only” option4=”1 and 2 only” correct=”option1″]<\/p>\n

\n
\n
This question was previously asked in<\/div>\n
UPSC CAPF – 2018<\/div>\n<\/div>\n
Download PDF<\/a>Attempt Online<\/a><\/div>\n<\/div>\n
\nFarmer loan waivers affect aggregate demand through multiple channels, including increasing private consumption, impacting government finances (expenditure\/taxes), and potentially leading to crowding out of private investment due to increased government borrowing. The impact on credit availability via falling NPAs (crowding-in) is less certain or potentially offset by other factors like moral hazard and fiscal strain.
\n<\/section>\n
\n– Aggregate demand (AD) is influenced by Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M).
\n– Loan waivers directly affect farmers’ disposable income (boosting C) and government finances (impacting G or taxes, affecting C\/I).
\n– Increased government borrowing to fund waivers can raise interest rates, potentially reducing private investment (crowding out I).
\n– The impact on bank NPAs and subsequent credit availability (crowding in or out) is complex and debated, not a guaranteed positive effect.
\n<\/section>\n
\n1. **Private consumption:** Reduced debt burden increases farmers’ disposable income, leading to higher consumption (C). This directly increases aggregate demand.
\n2. **Public sector impact:** The cost is borne by the government (usually state governments). This requires either increased government expenditure (G) for the waiver itself or adjustments in other spending\/taxation, which can impact AD components.
\n3. **Crowding-out:** State governments often finance waivers through borrowing. Higher government borrowing increases demand for funds, potentially raising interest rates and reducing private sector investment (I). This crowds out private investment.
\n4. **Crowding-in:** While NPAs might technically decrease immediately post-waiver, the fiscal cost, potential for future waivers (moral hazard), and overall risk perception can make banks cautious about lending to the agricultural sector or state governments, potentially leading to overall credit squeeze or crowding out rather than crowding in. Therefore, the positive ‘crowding-in’ effect via falling NPAs is not a universally accepted or certain outcome for aggregate demand stimulus.
\n<\/section>\n","protected":false},"excerpt":{"rendered":"

If farmers\u2019 loans are waived in India, how will it affect the aggregate demand in the economy? 1. Private consumption impact via increase in private sector net wealth 2. Public sector impact via changes in government expenditure\/taxes 3. Crowding-out impact via higher borrowing by State Governments 4. Crowding-in impact via higher credit availability as bank … <\/p>\n

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