Question

How does fiscal deficit lead to low GDP which further creates a vicious cycle of fiscal deficit

Answer 1

Dear student,

Fiscal deficit occurs when expenditure exceeds revenue. Fiscal deficit= revenues -expenditure

When expenditures are more government borrow money which impose interest payment penalties. It reduces the GDP as economy lacks funds.
To overcome deficit government needs to borrow money, borrowing implies interest payment which enhances revenue expenditure which further creates vicious cycle of fiscal deficit.

Regards