Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 2%
- growth rate of real GDP = 3%
- current debt-to-GDP ratio = 50%
- primary budget deficit = 0
Over this one-year period,the debt-to-GDP ratio will have

Question

Quizplus · Accepted Answer

The debt-to-GDP ratio will fall because the growth rate of real GDP (3%) is higher than the real interest rate on government bonds (2%), and there is no primary budget deficit. The difference of 1% applied to the 50% debt-to-GDP ratio results in a decrease of 0.5 percentage points.

Consider the Following Data About Government Debt and Deficit in a Given