Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 3%
- growth rate of real GDP = 3%
- current debt- to- GDP ratio = 25%
- primary budget surplus as a percentage of GDP = 2% Over this one- year period the debt- to- GDP ratio will have

Question

Quizplus · Accepted Answer

The debt-to-GDP ratio can be calculated using the following formula:
Debt-to-GDP ratio = (Current debt / Current GDP) * 100
In this case, the current debt-to-GDP ratio is 25%. We know that the real interest rate on government bonds is also 3%, and the growth rate of real GDP is 3%. Additionally, we know that the primary budget surplus as a percentage of GDP is 2%.

Using this information, we can calculate the change in the debt-to-GDP ratio as follows:

Change in debt-to-GDP ratio = (Real interest rate on government bonds - Growth rate of real GDP + Primary budget surplus as a percentage of GDP) * Current debt-to-GDP ratio
= (3% - 3% + 2%) * 25%
= 0.5%

Therefore, the debt-to-GDP ratio will have fallen by 0.5%, or 2 percentage points, over this one-year period. The correct answer is B.

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