Restricting fiscal deficit is a sign …

Restricting Fiscal Deficit (or borrowing) is a sign of Fiscal discipline as it reduces the financial burden of principal repayment and interest payment on future generations. However, sometimes, borrowing can be advantageous if a major part of them is used for buying capital goods which add to the capital stock of hte economy, thereby improving its productivity and efficiency.

At times of deflationary gap (or deficient demand), aggregate demand turns out to be lower than aggregate supply, i.e. what consumers are willing to buy is less than what producers are ready to sell.

The funds received by the government through Borrowing can be used for Gross Public Investment,i.e. building railways, roadways, dams, bridges, etc. This leads to rise in employment, which leads to rise income in the hands of consumers. With greater income, the household sector will start demanding more goods and services, thereby curbing Deflationary Gap in the economy.