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,