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Consider the following statements regarding Primary deficit.
1. The sum of the fiscal deficit and interest payments is the primary deficit.
2. It contains the debt from the past.
Which of the above statements is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding Primary deficit.1. The sum...
Primary Deficit = Fiscal Deficit – Interest Payments
- The government's total borrowing requirement includes the interest commitments on accumulated debts.
- Primary deficit reflects the extent to which such interest commitments have compelled the government to borrow in the current period.
- It excludes the past debt burden and shows the net increase in the government's indebtedness due to the current year's fiscal operations. A reduction in primary deficit is reflective of government's efforts at bridging the fiscal gap during a financial year.
Most Upvoted Answer
Consider the following statements regarding Primary deficit.1. The sum...
Explanation:
The primary deficit is an important concept in fiscal policy and public finance. It refers to the difference between the government's total expenditure (excluding interest payments) and its total revenue. Let's analyze the given statements:
Statement 1: The sum of the fiscal deficit and interest payments is the primary deficit.
This statement is incorrect. The primary deficit is calculated by subtracting interest payments from the fiscal deficit, not by adding them. The fiscal deficit represents the excess of the government's total expenditure over its total revenue, including interest payments. By subtracting interest payments from the fiscal deficit, we obtain the primary deficit, which reflects the government's expenditure and revenue situation excluding the interest burden.
Statement 2: It contains the debt from the past.
This statement is also incorrect. The primary deficit does not include the debt from the past. It only considers the current expenditure and revenue situation. The primary deficit provides an important measure of the government's ability to finance its current expenditure without relying on borrowing or accumulating additional debt.
Conclusion:
Neither of the given statements is correct. The primary deficit is calculated by subtracting interest payments from the fiscal deficit and does not include the debt from the past. It is an important indicator of the government's fiscal sustainability and its ability to manage its expenditure and revenue situation without relying on borrowing.
The primary deficit is an important concept in fiscal policy and public finance. It refers to the difference between the government's total expenditure (excluding interest payments) and its total revenue. Let's analyze the given statements:
Statement 1: The sum of the fiscal deficit and interest payments is the primary deficit.
This statement is incorrect. The primary deficit is calculated by subtracting interest payments from the fiscal deficit, not by adding them. The fiscal deficit represents the excess of the government's total expenditure over its total revenue, including interest payments. By subtracting interest payments from the fiscal deficit, we obtain the primary deficit, which reflects the government's expenditure and revenue situation excluding the interest burden.
Statement 2: It contains the debt from the past.
This statement is also incorrect. The primary deficit does not include the debt from the past. It only considers the current expenditure and revenue situation. The primary deficit provides an important measure of the government's ability to finance its current expenditure without relying on borrowing or accumulating additional debt.
Conclusion:
Neither of the given statements is correct. The primary deficit is calculated by subtracting interest payments from the fiscal deficit and does not include the debt from the past. It is an important indicator of the government's fiscal sustainability and its ability to manage its expenditure and revenue situation without relying on borrowing.
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Community Answer
Consider the following statements regarding Primary deficit.1. The sum...
Primary Deficit = Fiscal Deficit – Interest Payments
- The government's total borrowing requirement includes the interest commitments on accumulated debts.
- Primary deficit reflects the extent to which such interest commitments have compelled the government to borrow in the current period.
- It excludes the past debt burden and shows the net increase in the government's indebtedness due to the current year's fiscal operations. A reduction in primary deficit is reflective of government's efforts at bridging the fiscal gap during a financial year.
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Consider the following statements regarding Primary deficit.1. The sum of the fiscal deficit and interest payments is the primary deficit.2. It contains the debt from the past.Which of the above statements is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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