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 100 billion units of currency. What is the highest deficit it can have without raising the debt-to-income ratio?
A)just under 2 billion units
B)just under 3 billion units
C)just under 5 billion units
D)just under 6 billion units

Question

Quizplus · Accepted Answer

The highest deficit without raising the debt-to-income ratio is determined by the nominal growth rate, which is the sum of the real growth rate (3%) and the inflation rate (2%), totaling 5%. Therefore, 5% of 100 billion units is 5 billion units.

Suppose That a Country Has an Inflation Rate of About