Author Question: If the government runs a primary deficit in year zero of B0, and, in year 1, decides to stabilize ... (Read 21 times)

biggirl4568 · **on:** Jun 30, 2018

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

Question 2

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