Due to waiving of loans, States have to increase taxes and there by demand will decrease..

Due to waiving of loans, States have to increase taxes and there by demand will decrease..

 

Increase...because it will reduce liablities of farmers. They will have more money to buy goods and services

 

Demand will increase . It will clean balance sheet of banks hence lending activities will increase . And bankers are the risk takers and RBI is the guardian of economy .

 

Apparently Increase. Given they will have more money at hand. But on the other hand, since loans are being waived off. Someone has to pay to the banks to keep them off the balance sheet. So it is merely the displacement of liabilities. So no net effect on aggregate demand.

 

It will decrease.....according to economic survey vol ii

 

DecreasesAd = consumption exp +govt exp +investment exp + exports

 

Decrease .Logic - farm loan waiving ; banks will not be willing to lend much ; interest rate will be high ; higher interest rate ; less lending activities ; less liquidity ; less demand