What could happen if a country has a persistent fiscal deficit?

A persistent fiscal deficit occurs when a government's expenditures consistently exceed its revenues. Over time, this situation can lead to an increase in national debt as the government needs to borrow funds to cover the shortfall between what it earns and what it spends. To finance the deficit, governments typically issue bonds or take loans, which increases the total amount owed.

As the fiscal deficit continues, the accumulated borrowing can create a cycle where the government may have to borrow even more to pay interest on the existing debt, potentially leading to a situation where the debt grows larger than the country’s economic output. This may also hinder future economic growth as resources are diverted towards paying off interest rather than investing in public services or infrastructure.

In contrast, the other outcomes like increased government savings, reduction in national debt, or stabilization of the economy are unlikely in the context of a persistent fiscal deficit. Increased savings would imply that the government is reducing its spending or increasing its revenue, which contradicts the idea of a fiscal deficit. Similarly, a reduction in national debt contradicts the nature of persistent deficits, which inherently increases debt. Lastly, stabilization of the economy typically requires balanced budgets or surpluses rather than ongoing deficits. Thus, the link between a persistent fiscal deficit and potential increases in