What is the change in fiscal deficit if both the primary deficit and interest payments are doubled?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Increases by 100%.
- The change in the fiscal deficit will increase by 100% if the primary deficit and interest payments are both doubled.
- This is so because interest payments and the primary deficit add up to the fiscal deficit.
- The budget deficit is essentially doubled by doubling both components, leading to a 100% increase.
- It is a major increase in government borrowing and spending, which may have a big impact on the economy in the form of higher debt payment costs and inflationary pressures.