If the deficit is 0.08 times GDP,the existing debt-GDP ratio is 0.8,and the growth rate of nominal GDP is 0.05,then the change in the debt-GDP ratio is
A)+0.08
B)+0.04.
C)0)
D)-0.08.

Question

Quizplus · Accepted Answer

The change in the debt-GDP ratio can be calculated using the following formula:

Change in debt-GDP ratio = (deficit/GDP) - (growth rate of nominal GDP) x (existing debt-GDP ratio)

Substituting the given values, we get:

Change in debt-GDP ratio = (0.08/1) - (0.05 x 0.8) = 0.08 - 0.04 = 0.04

Therefore, the change in the debt-GDP ratio is +0.04 or 0.04. Option B is the closest answer to this result.

If the Deficit Is 0