Question: 6. (i) What meant by the cyclically adjusted primary budget deficit? How is it calculated and why is it equivalent conceptually equivalent to the discretionary

6. (i) What meant by the cyclically adjusted primary budget deficit? How is it calculated and why is it equivalent conceptually equivalent to the discretionary fiscal impulse? [4] (ii) Using the government's budget identity, derive the dynamic equation for the debt to GDP ratio (), given by = + ( ), and discuss the necessary condition for governments to stay solvent, i.e., not to default on its debt, and discuss the implication for long-run sustainability of debt. [15] (iii) Discuss how each of the following can help to reduce the debt burden of governments and explain potential negative consequences associated with each method: [6] a. Reducing the primary deficit, b. Reducing the real interest rate, c. Increasing the growth rate,

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