Table 15.3 Cordelia Saldinia $$\begin{array} { | l | r | r | } \hline \text { Debt-to-cDP ratio } & 172 \% & 65 \% \ \hline \text { Average annual ecanmaic growth } & & \ \text { unt } & 4.7 \% & 3.2 \% \ \hline \text { Average influtim rate } & 6.3 \% & - 0.3 \% \ \hline \text { Average nominal interest rate } & 2.5 \% & 4.6 \% \ \hline \end{array}$$ The above table contains data for the nations of Cordelia and Saldinia for 2012. Assume seigniorage is zero. -Refer to Table 15.3.Based on the data in the table,the primary budget deficit necessary to make fiscal policy sustainable in Cordelia is ________ of GDP.

Question

Quizplus · Accepted Answer

For fiscal policy to be sustainable, the primary budget deficit should be equal to the product of the debt-to-cDP ratio and the difference between the nominal interest rate and the growth rate of the economy. 
For Cordelia, the primary budget deficit necessary for sustainability is:
0.172 × (0.046 - 0.047) = -0.0015 or -1.5% of GDP. 
Therefore, the correct answer is (D) -1.5%.

Table 153 Cordelia Saldinia The Above Table Contains Data for the Nations of Cordelia

Table 153
Cordelia Saldinia The Above Table Contains Data for the Nations of Cordelia