If the revenue deficit of an economy is3% ofGDP, the primary deficit is2% ofGDP and the fiscal deficit…
In government budget accounting, Fiscal Deficit equals Revenue Deficit plus Capital Expenditure (assuming non-debt creating capital receipts are zero): Fiscal Deficit =…
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If the revenue deficit of an economy is3% ofGDP, the primary deficit is2% ofGDP and the fiscal deficit is7% ofGDP, the capital expenditure toGDP ratio of that economy would be:
Answer and explanation
Correct answer C
In government budget accounting, Fiscal Deficit equals Revenue Deficit plus Capital Expenditure (assuming non-debt creating capital receipts are zero): Fiscal Deficit = Revenue Deficit + Capital Expenditure. Substituting the given values (Fiscal Deficit = 7% of GDP and Revenue Deficit = 3% of GDP) gives: Capital Expenditure = 7% - 3% = 4% of GDP . The primary deficit of 2% of GDP is extra information that implies interest payments equal 7% - 2% = 5% of GDP.
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UGC NET Economics