Consider the following statements about Fiscal Deficit 1 When a government rsquo s to...........

Economic Affairs Public Finance and Debt Management

Consider the following statements about Fiscal Deficit.

1. When a government’s total expenditures exceed the revenue that it generates including money from borrowings it is called fiscal deficit.

2. A large fiscal deficit leads to a weaker national currency.

Which of the above statements is/are correct?

Only 1

Only 2

Both 1 & 2

Neither 1 nor 2

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Explanation:

Both statements are incorrect.
A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

A large fiscal deficit can contribute to a weaker national currency. This is because a high fiscal deficit may lead to increased government borrowing, which can put pressure on the country's monetary system and, in turn, lead to the depreciation of the national currency.