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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
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B
Only 1 and 3
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C
Only 3
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D
All of the above
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Solution

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.

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