Inflation
Increased borrowing costs
Crowding out of private investment
All of the above
Answer is Right!
Answer is Wrong!
The correct answer is D. All of the above.
A fiscal deficit is the amount by which a government’s spending exceeds its revenue in a given year. When a government runs a fiscal deficit, it must borrow money to finance its spending. This borrowing can lead to a number of problems, including:
- Inflation: When the government borrows money, it increases the demand for money in the economy. This can lead to higher prices, or inflation.
- Increased borrowing costs: When the government borrows money, it has to pay interest on the loan. This interest expense can add to the government’s budget deficit, making it even more difficult to reduce the deficit in the future.
- Crowding out of private investment: When the government borrows money, it competes with private businesses for loans. This can make it more difficult for businesses to get the financing they need to invest in new projects, which can slow economic growth.
In addition, high fiscal deficits can also lead to a loss of confidence in the government’s ability to manage its finances. This can make it more difficult for the government to borrow money in the future, and can also lead to higher interest rates.
Overall, high fiscal deficits can have a number of negative consequences for the economy. It is important for governments to take steps to reduce their deficits, in order to avoid these problems.