Primary deficit in a government budget will b e zero, when _______a)revenue deficit is zerob)net interest payments are zeroc)fiscal deficit is zerod)fiscal deficit is egual to interest paymentCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

Understanding Primary Deficit
Primary deficit is a critical concept in government budgeting that reflects the fiscal health of a country. It is defined as the difference between the government's total expenditure and its total revenue, excluding interest payments on debt.
When is Primary Deficit Zero?
A primary deficit will be zero when the government's fiscal deficit is equal to its net interest payments. This indicates that the government is able to cover its non-interest spending through its revenue, and any additional deficit is solely due to interest obligations.
Key Points
- Fiscal Deficit: This represents the total borrowing requirements of the government, which includes both interest payments and primary deficit. Thus, fiscal deficit = primary deficit + interest payments.
- Interest Payments: These are the costs incurred by the government for borrowing money, which must be paid regardless of the primary balance.
Conclusion
When the fiscal deficit equals net interest payments, it implies that all additional government spending is financed through debt, and there are no additional borrowings for non-interest expenditures. This results in a primary deficit of zero. Therefore, option 'D' is correct, as it captures this relationship succinctly.

Answer

Primary deficit is the difference between fiscal deficit and interest payments. Primary deficit is zero when these two are equal.

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