CFA Level I · CFA Level I Exam · Fiscal Policy
A government's budget shows tax revenue of 900 and total spending of 1,000, of which 120 is interest on existing debt. The primary balance is most likely:
The primary balance is a surplus of 20. It equals revenue of 900 minus spending excluding interest of 880. The overall deficit of 100 includes the 120 interest cost, so it is not the primary balance.
- AA deficit of 100
- BA deficit of 220
- CA surplus of 20Correct
Explanation
The primary balance excludes interest payments. Revenue 900 minus non-interest spending (1,000 - 120 = 880) gives a surplus of 20. The overall deficit is 100, which is the first option, but it includes interest.
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