Question

explain the difference between the overall government budget deficit and the primary deficit. a. the overall budget deficit equals the primary budget deficit minus net interest payments. b. the overall budget deficit equals the primary budget deficit plus net interest payments. c. the overall budget deficit equals the primary budget deficit plus government investment spending. d. the overall budget deficit equals the primary budget deficit minus government investment spending.

Answer 1

The overall budget deficit equals the primary budget deficit plus net interest payments.

Thus, Option B is the correct answer.

Step-by-step explanation:

The primary budget deficit measures the difference between the government's total revenue and its expenditures, excluding interest payments on any outstanding debt.

In other words, it measures the government's deficit before accounting for the cost of borrowing(debt). The primary budget deficit is an important tool because it shows whether the government is living within its range or not, by indicating whether the government's revenue is enough to cover its expenses.

The overall budget deficit, on the other hand, measures the difference between the government's total revenue and its total expenditures, including interest payments on any outstanding debt.

It is a broader measure of the government's fiscal position because it takes into account the cost of servicing the government's debt.

Therefore, the overall budget deficit equals the primary budget deficit plus net interest payments.