If the deficit is 0.1 times GDP,the existing debt-GDP ratio is 0.5,and the growth rate of nominal GDP is 0.04,then the change in the debt-GDP ratio is
A)+0.08
B)+0.075.
C)0)
D)-0.075.

Question

Quizplus · Accepted Answer

The change in the debt-GDP ratio is equal to the deficit minus the growth rate of nominal GDP times the existing debt-GDP ratio. In this case, the deficit is 0.1 times GDP, the existing debt-GDP ratio is 0.5, and the growth rate of nominal GDP is 0.04. Therefore, the change in the debt-GDP ratio is 0.1 - 0.04 * 0.5 = 0.08.

If the Deficit Is 0