CA Foundation · Business Economics · Public Finance
Which of the following is the most appropriate consequence of a persistently high revenue deficit financed by borrowing?
A persistently high revenue deficit means borrowing is used to finance day-to-day consumption spending rather than create assets. This raises debt and future interest payments without generating income, so the burden shifts to future taxpayers.
- AIt creates assets that will yield future income
- BIt leads to borrowing being used for consumption, increasing future debt burden without creating assetsCorrect
- CIt reduces the interest payment liability of the government
- DIt automatically reduces the fiscal deficit
Explanation
A revenue deficit means the government borrows to meet current expenditure, which creates no assets to generate returns. Debt and interest burdens therefore rise for future generations. The other options are incorrect since borrowing raises interest liability and fiscal deficit.
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