The debt-to-GDP ratio will tend to decline over time when A)r g. B)r

Question

The debt-to-GDP ratio will tend to decline over time when
A)r > g.
B)r < g.
C)the primary deficit increases.
D)the initial level of debt increases.

Quizplus · Accepted Answer

When the interest rate (r) is less than the growth rate (g), the economy is able to grow faster than the amount of debt it accumulates. This means that over time, the debt-to-GDP ratio will tend to decline naturally without needing to make significant cuts to spending or increasing taxes. Therefore, choice B is the correct answer.

The Debt-To-GDP Ratio Will Tend to Decline Over Time When