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?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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