Question

What is fiscal deficit?

• A. Primary deficit - Interest payments
• B. Primary deficit + Interest payments
• C. Total expenditure of the government - Total income of the government
• D. None of these

Hint:

Fiscal deficit represents the total borrowing needs of the government, and it is calculated by subtracting total income from total expenditure.

Answer 1

The Correct Option is C

Step 1: Understanding Fiscal Deficit:
A fiscal deficit occurs when the government’s total expenditure exceeds its total revenue (excluding borrowings). It represents the total borrowing requirements of the government from all sources. Fiscal deficit is an important indicator of the government’s financial health and sustainability.
Step 2: Analyzing the Options:
- Option (A) Primary deficit - Interest payments: The primary deficit is calculated by subtracting interest payments from the fiscal deficit. It reflects the government's fiscal position excluding interest liabilities. This option is incorrect as it is not the definition of fiscal deficit.
- Option (B) Primary deficit + Interest payments: This would give the fiscal deficit, but it is not the correct definition of fiscal deficit itself.
- Option (C) Total expenditure of the government - Total income of the government: This is the correct definition of fiscal deficit. It is calculated by subtracting the total income (revenue receipts) from the total expenditure of the government.
- Option (D) None of these: This is incorrect, as option (C) is the correct definition.
Step 3: Conclusion and Answer:
The correct answer is (C) because fiscal deficit is the difference between the total expenditure and the total income of the government.