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Budget Deficit implies the difference between earnings and spendings by the government. If written very simply say tax collections as earnings and some kind of spendings. Now if the spending is more than earnings it implies that the government is spending more than it can afford (either on credit or by taking loans which may be unsustainable) and causing a pseudo demand or excess demand relative to a given supply causing a demand pull inflation. Later if the government fails to say repay the debt the value of the economy's currency may depreciate as it would indicate that the economy doesnot have enough production/investment capabilities to meet the debts.

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12y ago

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