Effects of Fiscal debt on the economy

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  • Created by: Daria
  • Created on: 25-03-13 20:09

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…




good notes

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