High government deficits can lead to an unsustainable debt burden, which can lead to higher taxes, a decrease in private investment, and a decrease in economic growth. Inflation is experienced as an increase in the general level of prices of goods and services. Rising inflation decreases the purchasing power of money, leading to higher costs of living and reduced consumption. High interest rates can lead to a decrease in borrowing, which can lead to decreased investment and consumption, and a decrease in economic growth. High interest rates can make it more difficult for businesses and households to service their debts, leading to defaults, bankruptcies, and further economic contraction.
When government spending and debt are extremely large, it can lead to economic stagnation. Large government deficits can crowd out private investment and lead to higher taxes to pay for government spending, both of which can lead to decreased economic growth. Additionally, when government spending and debt are extremely large, it can lead to a situation where the government is unable to repay its debt, leading to a sovereign debt crisis.
An example of this can be seen in Greece in 2010. Greece had high government deficits and debt, and an inability to borrow more led to a sovereign debt crisis. This led to drastic austerity measures, a decrease in economic growth, and a decrease in the purchasing power of money. This situation eventually led to a deep recession and a long period of economic stagnation.
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Inflation and Deflation 13:58