If the inflation rate is 7 percent,real GDP growth is 2 percent,and the current budget deficit is $100 billion,what must the current national debt be if the debt-GDP ratio is to remain the same?

Question

Quizplus · Accepted Answer

To keep the debt-GDP ratio the same, the national debt must grow at the same rate as nominal GDP, which is the sum of real GDP growth and inflation. Here, that's 2% + 7% = 9%. If the budget deficit is $100 billion, this amount represents a 9% increase in the national debt, so the current national debt must be $100 billion / 0.09 = $1,111 billion.

If the Inflation Rate Is 7 Percent,real GDP Growth Is