Question

What do you understand by Fiscal Deficit?

Hint:

A high fiscal deficit indicates that the government is borrowing extensively, which could lead to inflationary pressure.

Answer 1

Fiscal Deficit is the difference between the government's total expenditure and its total revenue (excluding borrowings). It represents the total borrowing requirements of the government to meet its expenditure. A high fiscal deficit indicates that government spending exceeds its income, leading to increased borrowing. Persistent fiscal deficits can lead to rising public debt and may cause inflationary pressures due to increased money supply. Governments often manage fiscal deficits through measures like reducing expenditures, increasing tax revenues, or implementing fiscal reforms to ensure long-term economic stability.