The correct answer is (a). Fiscal deficit is always higher than revenue deficit.
Fiscal deficit is the difference between the government’s total expenditure and its total revenue, excluding grants. Revenue deficit is the difference between the government’s total revenue and its total expenditure, including grants.
Fiscal deficit is a measure of the government’s borrowing requirement. It is a more comprehensive measure of the government’s fiscal position than revenue deficit.
Revenue deficit is a measure of the government’s ability to meet its current expenditure from its own revenue. It is a less comprehensive measure of the government’s fiscal position than fiscal deficit.
The government’s fiscal deficit is financed by borrowing from the public, from the banking system, and from foreign sources. The government’s revenue deficit is financed by borrowing from the public and from the banking system.
A high fiscal deficit can lead to a number of problems, including:
- Inflation: The government may have to print money to finance its deficit, which can lead to inflation.
- Debt: The government may have to borrow more money to finance its deficit, which can lead to a high level of public debt.
- Interest rates: The government may have to pay higher interest rates on its debt, which can lead to higher interest rates for businesses and consumers.
- Economic growth: A high fiscal deficit can lead to slower economic growth.
A high revenue deficit can also lead to a number of problems, including:
- Inflation: The government may have to raise taxes to finance its revenue deficit, which can lead to inflation.
- Debt: The government may have to borrow more money to finance its revenue deficit, which can lead to a high level of public debt.
- Interest rates: The government may have to pay higher interest rates on its debt, which can lead to higher interest rates for businesses and consumers.
- Economic growth: A high revenue deficit can lead to slower economic growth.
It is important for the government to manage its fiscal deficit and revenue deficit carefully to avoid these problems.