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Zero Primary Deficit in an economy indicates which of the following?
- a)Entire borrowings of the Government are used to make interest payments.
- b)Zero interest payments by the Government.
- c)The Government is not borrowing money to make interest payments.
- d)The Government is not borrowing money to bridge the deficit.
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Zero Primary Deficit in an economy indicates which of the following?a)...
Understanding Zero Primary Deficit
Zero Primary Deficit is a key indicator of a government's fiscal health. It occurs when a government's total revenue equals its non-interest expenditures. This concept helps in assessing the sustainability of government finances.
Key Implications of Zero Primary Deficit:
- Entire Borrowings for Interest Payments:
- A zero primary deficit indicates that the government's revenue is sufficient to cover its operational expenses (non-interest).
- However, it also suggests that all new borrowings are utilized to pay for interest on existing debts, rather than for funding new projects or initiatives.
- No New Borrowings for Operational Costs:
- With a zero primary deficit, the government does not need to incur additional debt to finance its day-to-day operations.
- This is a positive sign, as it signifies fiscal discipline and effective revenue generation.
- Economic Stability:
- Achieving a zero primary deficit is often seen as a step towards fiscal stability.
- It allows the government to focus on long-term policies without the burden of excessive debt servicing impacting its budget.
Conclusion:
In summary, a zero primary deficit means that while the government is not borrowing to cover its operational deficits, it is indeed borrowing to service its existing debt. This situation highlights the importance of managing public debt effectively to ensure financial sustainability in the long run.
Zero Primary Deficit is a key indicator of a government's fiscal health. It occurs when a government's total revenue equals its non-interest expenditures. This concept helps in assessing the sustainability of government finances.
Key Implications of Zero Primary Deficit:
- Entire Borrowings for Interest Payments:
- A zero primary deficit indicates that the government's revenue is sufficient to cover its operational expenses (non-interest).
- However, it also suggests that all new borrowings are utilized to pay for interest on existing debts, rather than for funding new projects or initiatives.
- No New Borrowings for Operational Costs:
- With a zero primary deficit, the government does not need to incur additional debt to finance its day-to-day operations.
- This is a positive sign, as it signifies fiscal discipline and effective revenue generation.
- Economic Stability:
- Achieving a zero primary deficit is often seen as a step towards fiscal stability.
- It allows the government to focus on long-term policies without the burden of excessive debt servicing impacting its budget.
Conclusion:
In summary, a zero primary deficit means that while the government is not borrowing to cover its operational deficits, it is indeed borrowing to service its existing debt. This situation highlights the importance of managing public debt effectively to ensure financial sustainability in the long run.
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Community Answer
Zero Primary Deficit in an economy indicates which of the following?a)...
Primary deficit is calculated as Fiscal deficit – Interest payments. Hence, Zero Primary Deficit means that the entire borrowings of the Government are used to make interest payments.
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Zero Primary Deficit in an economy indicates which of the following?a)Entire borrowings of the Government are used to make interest payments.b)Zero interest payments by the Government.c)The Government is not borrowing money to make interest payments.d)The Government is not borrowing money to bridge the deficit.Correct answer is option 'A'. Can you explain this answer?
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