If the Government Runs a Primary Deficit in Year Zero

question 2

Multiple Choice

If the government runs a primary deficit in year zero of B0,and,in year 1,decides to stabilize the debt (i.e.,prevent the deficit from rising any further) ,then in year 1 and beyond,it must run a primary surplus equal to

• A)zero.
• B)B0.
• C) (1+r)B0.
• D)r.
• E)none of the above

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Definitions:

Price

The amount of money expected, required, or given in payment for something; it acts as a signal for scarcity or abundance of a product.

Budget Line

A depiction showcasing all feasible combinations of two articles that can be purchased, provided there's a fixed budget and the prices remain the same.

Money Income

Money income is the total income received by a household or individual in the form of currency or in transactions, excluding non-monetary benefits.