The DEBTLAND's economic growth is 5 percent and the interest rate paid on debt is also 5 percent.If the primary deficit to GDP ratio is 2 percent,the DEBTLAND's debt-GDP ratio will change by

Question

Quizplus · Accepted Answer

Since the primary deficit is 2 percent and the economic growth rate is also 5 percent, the debt-to-GDP ratio will change by the difference between the interest rate and the economic growth rate, which is 0. Hence, the debt-to-GDP ratio will not change, i.e., it will remain at 5 percent. Therefore, the answer is D (2 percent).

The DEBTLAND's Economic Growth Is 5 Percent and the Interest