Final answer:
A nation that cannot borrow money but has a large budget deficit faces high inflation, increased risk of defaulting on loans, and a reduced national savings rate, which impedes private investment and economic growth.
Step-by-step explanation:
A likely consequence for a nation that cannot borrow money but creates a large budget deficit includes several economic challenges. One significant effect is the potential for high inflation, which can occur when aggregate demand exceeds supply. Moreover, there is a heightened risk that the government might default on its loans, as seen in the historical examples of Turkey, Brazil, Venezuela, and Argentina, which can lead to a loss of investor confidence and capital flight.
Without the ability to borrow, the government may face a decrease in the national savings rate, making less financial capital available for private investment. This can lead to diminished economic growth as the private sector struggles to find funding for expansion. Additionally, as government debt grows disproportionately compared to GDP, the economy could be further strained by the increasing demand for government services, further exacerbating the deficit.