What happens to the debt-gdp ratio over time

Reference no: EM132119385

Question: The debt-GDP ratio: This exercise allows you to use the government budget constraint to study how the debt-GDP ratio changes over time. Suppose a government has an initial debt of $5 trillion, and the nominal interest rate is 5%.

(a) If the government keeps its primary budget in balance, what is the growth rate of its debt? Why?

(b) If the government keeps its total budget in balance, what is the growth rate of its debt? Why?

(c) Suppose the country's GDP grows at 4% per year. What happens to the debt-GDP ratio over time in the two cases of parts (a) and (b)?

(d) Are the situations in part (c) sustainable? Why or why not?

Reference no: EM132119385

Questions Cloud

Which categories of spending or taxes were most responsible : The budget deficits of the 1980s and 2000s: To what extent were the U.S. budget deficits of the 1980s and 2000s caused by higher spending versus.

Write the budget constraint for each period : The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3.

Evaluate the importance of the work in the field : List book as a citation. Indicate the topic and structure of the book (what the sections cover--not each chapter) .

Explain how people process information during a fire : Consider how herding will affect the exit capacity and decision-making toward exits, and identify concerns with the exits of this facility.

What happens to the debt-gdp ratio over time : Suppose the country's GDP grows at 4% per year. What happens to the debt-GDP ratio over time in the two cases of parts (a) and (b)?

Are boys-girls socialized differently in terms of politics : Based on what you have learned in this course and theories on gender and the state, what explains why there are so few women elected officials in the U.S.?

What happens to private saving and investment : What happens to private saving, total saving, and investment in the three scenarios? Why? (Assume foreign saving does not change.)

Calculate the average atomic mass of chlorine : Calculate the average atomic mass of chlorine. The percentages in parentheses denote the relative abundances.

Define operational assessment : What is the purpose of OT&E and how does this differ from DT&E? Define Operational Assessment.

User Account

All Pages