Calculate the constant debt-gdp ratio

Assignment Help Business Economics

Reference no: EM135526

Suppose in a country the real growth rate is 4% and the real interest rate is 6%.

(a) Calculate the constant debt-GDP ratio that the country can achieve if the country runs a primary budget deficit of 3%. Is this debt-GDP ratio stable, i.e., if the debt changes slightly the debt- GDP ratio gravitates towards this constant ratio or the debt- ratio increases or decreases without a limit? Explain using appropriate calculations and a graph.

(b) Now suppose the country runs an austerity program and begins to maintain a primary surplus of 2%. Calculate the constant debt-GDP ratio that the country can achieve. Is this debt-GDP ratio stable? Explain using appropriate calculations and a graph.
(ii) Now suppose the country follows an expansionary monetary policy that lowers the real interest to 2%, while real growth rate remains at 4%.

(c) Calculate the constant debt-GDP ratio that the country can achieve if the country runs a primary budget deficit of 3%. Is this debt-GDP ratio stable? Explain using appropriate calculations and a graph.

(d) Now suppose the country begins to maintain a primary surplus of 2% after pursuing a stringent fiscal policy. Now, calculate the constant debt- GDP ratio that the country can achieve. Is this debt-GDP ratio stable? Explain using appropriate calculations and a graph.

Reference no: EM135526

Questions Cloud

Recognizes true statements of cholesterol and its fluidity : Recognizes true statements of cholesterol and its fluidity. Cholesterol increases membrane fluidity that otherwise contains mainly long chain saturated fatty acids.

Explain natural rate hypothesis are all related : Explain how the short-run Phillips curve, the long-run Phillips curve, the short-run aggregate supply curve, the long-run aggregate supply curve, and the natural rate hypothesis are all related.

What would occur to the preferred habitat of your plant : What would occur to the preferred habitat of your plant (Red Maple) in case of partial water drainage of the Mer bleue marsh (such as the water level would go down half the depth of the marsh).

Explain mustard and mayonnaise are substitutes : Mustard and mayonnaise are substitutes. Mustard and relish are complements. Mustard is a normal good. During the summer, about 50% of all mustard was recalled by manufacturers and removed from store shelves.

Calculate the constant debt-gdp ratio : Calculate the constant debt-GDP ratio that the country can achieve if the country runs a primary budget deficit of 3%. Is this debt-GDP ratio stable.

Which phase of the ethical decision-making framework : Frank found himself in the midst of an ethical dilemma at work, and was using an ethical decision-making matrix, to address his work and personal values. Frank was most likely in which phase of the Ethical Decision-Making Framework.

What is rate of economic profit : If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent what is your rate of economic profit

Mutagens are generally not carcinogens : Which of the follow statements regarding cancer risk factors is false. Mutagens are generally not carcinogens.

Problem on generation of solar energy is sunlight : Suppose that the only input used in the generation of solar energy is sunlight

User Account

All Pages