Question

Many nations are running a Fiscal Budget Deficit do you consider this a problem? Why or why not? What impact do Central Banks play in this issue?

Answer 1

Fiscal Budget Deficit is not a problem until the expenditures made by the government are developmental expenditure. If the economy is spending more today in infrastructural developments, research and development and on other sectors to enhance the standard of living than to have budget deficit is not a primary concern. The government can expect more income in future with these developments.

Central Bank is an advisory agency to the government and therefore give suggestion and policy for the government to control the deficit. Also, central bank provides loan and advances to the government in the situation when deficit is finance through foreign loan and government want to repay. Therefore, Central bank finance budget deficit if needed.