If the Government Runs a Primary Deficit in Year Zero

question 22

Multiple Choice

If the government runs a primary deficit in year zero of B0, and decides to repay it in year t (i.e., bring the debt back down to its pre- existing level) , then in year t it must run a primary surplus equal to:

• A) B0(1 + r).
• B) B0(1 + r)t.
• C) one.
• D) zero.
• E) B0.