Suppose the real rate of interest is 3% and the growth rate of real GDP is 1%.If the government has a positive stock of outstanding debt and its goal is to hold the debt-to-GDP ratio constant at its current level,then it

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To hold the debt-to-GDP ratio constant at its current level, the government must run a primary budget surplus. This means that government revenues must exceed non-interest expenditures. Since the real rate of interest is 3% and the growth rate of real GDP is 1%, the debt-to-GDP ratio will increase by 2% each year (3% - 1% = 2%). Therefore, a primary budget surplus (i.e. government revenues exceeding non-interest expenditures) equal to or greater than 2% of GDP would be required to hold the debt-to-GDP ratio constant.

Suppose the Real Rate of Interest Is 3% and the Growth