Consider a government with a positive stock of debt, and suppose the real interest rate on government bonds equals the rate of growth of real GDP. In this case, the government's debt- to- GDP ratio will rise only if

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Quizplus · Accepted Answer

The primary budget deficit refers to the difference between government spending and revenue, excluding interest payments. If there is a primary budget deficit, it means that the government is spending more than it is taking in, even before accounting for the interest payments on its debt. Therefore, the debt-to-GDP ratio would continue to rise, even if the real interest rate on government bonds equals the rate of growth of real GDP.

Consider a Government with a Positive Stock of Debt, and Suppose