Suppose that a country has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency.It can have a deficit of just under

Question

Quizplus · Accepted Answer

To calculate the deficit that can be sustained without raising the debt-to-income ratio, we need to use the formula:

Deficit = Nominal GDP x (Real Growth Rate - Inflation Rate)

Deficit = 200 billion x (0.03 - 0.02) = 2 billion units of currency

Therefore, the country can have a deficit of 10 billion units of currency without raising the debt-to-income ratio. So, the correct choice is (C).

Suppose That a Country Has an Inflation Rate of About