What is the inflation-adjusted deficit/surplus ratio to gdp

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Reference no: EM131145588

Consider an economy characterized by the following facts:

i. The official budget deficit is 4% of GDP.

ii. The debt-to-GDP ratio is 100%.

iii. The nominal interest rate is 10%.

iv. The inflation rate is 7%.

a. What is the primary deficit/surplus ratio to GDP?

b. What is the inflation-adjusted deficit/surplus ratio to GDP?

c. Suppose that output is 2% below its natural level. What is the cyclically adjusted, inflation-adjusted deficit/surplus ratio to GDP?

d. Suppose instead that output begins at its natural level and that output growth remains constant at the normal rate of 2%. How will the debt-to-GDP ratio change over time?

Reference no: EM131145588

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