Question

What do you mean by 'Fiscal Discipline'? What happens if fiscal discipline is not maintained in the economy?

Answer 1

Fiscal discipline refers to a state of an ideal balance between revenues and expenditures of the government. It calls for a necessary check on the expenditures in view of the limited revenues of the government. Lack of fiscal discipline often causes excess expenditure. It leads to inflationary spiral: a situation when wages catch prices and prices catch wages. High cost of production starts hurting the process of investment. Reduction in investment causes unemployment. The economy sinks into a low level equilibrium trap.