Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Question

Quizplus · Accepted Answer

The debt is sustainable because the nominal GDP growth rate (5 percent per year) is higher than the rate at which the budget deficit is rising (3 percent per year). This means the economy is growing faster than the debt, making it easier to manage over time. Additionally, if the current generation saves enough, it can help offset the future burden on future generations, making the debt not only sustainable but also manageable in terms of intergenerational equity.

Suppose the Budget Deficit Is Rising 3 Percent Per Year