What is the main purpose of a fiscal rule that limits the government's debt-to-GDP ratio?
Correct answer: A. To promote long-term fiscal sustainability
- A. To promote long-term fiscal sustainability
- B. To guarantee a fixed exchange rate
- C. To eliminate all taxation on households
- D. To ensure every annual budget has a surplus
Explanation
A debt-to-GDP limit is intended to keep public borrowing within a level that the economy can service over time. It does not require a surplus every year, because borrowing may still be appropriate during recessions or for productive investment.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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