Q. Which of the following is/are the effects of a budget deficit?
1. Rise in the National Debt
2. Rise in value of the currency
3. Increase in currency circulation
Select the correct answer using the codes given below:
Answer: B
Notes:
Budget deficit
A budget deficit is an annual shortfall between government spending and tax revenue. The deficit is the annual amount the government needs to borrow.
Effects of a budget deficit:
- Rise in national debt
- Higher debt interest payments
- Fall in value of the currency
- Increase in currency circulation
- Increase in Aggregate Demand (AD)
- Possible increase in public sector investment
- May cause crowding out and higher bond yields
Source: Ramesh Singh
