1.Define fiscal defecit: Fiscal defecit occurs when government spending/borrowing > gov. revenue.
2. What are the negative effects?
- Financing debt throught overseas and domestic investment can lead to a higher interests rates in order to attract bond buyers. If budget defecit rises to a high level, this will have negative effect in the ec. growth + higher inflation
- Opportunity cost. Gov. has to spend more and more each year to finance defecit. Money are therefore taken away from ppl and businesses that pay taxes to finance the debt
- Reduction of the deficit will be…
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