Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is greater than the growth rate of real GDP,the debt-to-GDP ratio

Question

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When the real interest rate is greater than the growth rate of real GDP, the government will have to pay more in interest on its debt than the economy is growing. This will cause the debt-to-GDP ratio to increase over time, as the interest payments on the debt accumulate faster than the economy is growing. Therefore, the correct choice is A) the debt-to-GDP ratio will increase.

Assume That Seigniorage and the Government's Primary Deficit Are Both