Fiscal deficits can affect inflation and the stability of the economy in a few important ways:
More Government Spending: When governments have deficits, they usually spend more money. This extra money can boost the economy, but if the economy is already doing well, it might cause inflation.
Cost of Borrowing: Big deficits can make borrowing more expensive. This happens because investors want higher interest rates for loans that seem riskier. In turn, this can slow down economic growth.
Understanding Trust: Ongoing deficits can make people worried about how financially healthy a country is. This worry can cause ups and downs in financial markets.
In summary, it's really important to find the right balance!
Fiscal deficits can affect inflation and the stability of the economy in a few important ways:
More Government Spending: When governments have deficits, they usually spend more money. This extra money can boost the economy, but if the economy is already doing well, it might cause inflation.
Cost of Borrowing: Big deficits can make borrowing more expensive. This happens because investors want higher interest rates for loans that seem riskier. In turn, this can slow down economic growth.
Understanding Trust: Ongoing deficits can make people worried about how financially healthy a country is. This worry can cause ups and downs in financial markets.
In summary, it's really important to find the right balance!