Question

    Consider the following statements about fiscal

    deficit: 1. Fiscal deficit is the difference between total revenue and total expenditure of the government, excluding borrowings. 2. A high fiscal deficit always leads to high inflation in the economy. 3. Fiscal deficit is a measure of the government's borrowing requirements. Which of the above statements are correct?
    A 1 only Correct Answer Incorrect Answer
    B 1 and 3 only Correct Answer Incorrect Answer
    C 2 and 3 only Correct Answer Incorrect Answer
    D 1, 2 and 3 Correct Answer Incorrect Answer

    Solution

    Fiscal deficit is the shortfall between government revenue and expenditure, excluding borrowings (statement 1). It measures the borrowing requirements of the government (statement 3). However, a high fiscal deficit does not always lead to inflation (statement 2 is incorrect).

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