Which condition most directly improves the sustainability of public debt over time?
Correct answer: B. A stable primary surplus supporting debt service
- A. Debt growth persistently exceeding economic growth
- B. A stable primary surplus supporting debt service
- C. Permanent financing of interest through new borrowing
- D. Falling tax revenue with unchanged expenditure
Explanation
A stable primary surplus provides resources to meet interest obligations and can help prevent debt from rising excessively. Borrowing continuously to pay interest or allowing debt to grow faster than the economy worsens debt sustainability.
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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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