Q. With reference to the impacts of Fiscal Deficit, which of the following is/are correct?
Select the correct answer using the code given below:
Q. With reference to the impacts of Fiscal Deficit, which of the following is/are correct?
Select the correct answer using the code given below:
The correct option is D 1, 2 and 3
Explanation:
Fiscal deficit increases inflation: The Fiscal deficit can lead to cost-push inflation. The government is a major player in the market for borrowings and doing away with the practice of getting currency notes printed (since 1991) exerts upward pressure on interest rates.
- Higher interest rates increase production cost, which is passed on to consumers, thereby leading to higher prices. The degree of impact on inflation is dependent on the quality of expenditure.
Fiscal deficit increases interest rates: As the governments borrow more to finance their fiscal deficits and accumulate more debt, interest rates tend to go up.
Fiscal deficit increases interest payment burden: The burden of higher interest payment increases for the Government as the expenditure of the government does not decrease.
Explanation:
Fiscal deficit increases inflation: The Fiscal deficit can lead to cost-push inflation. The government is a major player in the market for borrowings and doing away with the practice of getting currency notes printed (since 1991) exerts upward pressure on interest rates.
- Higher interest rates increase production cost, which is passed on to consumers, thereby leading to higher prices. The degree of impact on inflation is dependent on the quality of expenditure.
Fiscal deficit increases interest rates: As the governments borrow more to finance their fiscal deficits and accumulate more debt, interest rates tend to go up.
Fiscal deficit increases interest payment burden: The burden of higher interest payment increases for the Government as the expenditure of the government does not decrease.
