Question

High Fiscal deficit may lead to-
1. A higher tax burden on future generations.
2. Lower interest rates.
3. Inflation
4. Reduced private investment
Correct answer code is:

• A. Only 1, 3 and 4
• B. Only 1 and 3
• C. Only 3
• D. All of the above

Answer 1

The correct option is A Only 1, 3 and 4

If budget deficit arises due to reduction in taxes, keeping government expenditure constant, this will also lead to rise in interest rate and will therefore cause crowding-out effect on private investment.