Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency. What is the highest possible deficit it can have without raising the debt-to-income ratio?
A)just under 18 billion units
B)just under 12 billion units
C)just under 9 billion units
D)just under 1 billion units

Question

Quizplus · Accepted Answer

The highest possible deficit without raising the debt-to-income ratio is determined by the nominal growth rate, which is the sum of the real growth rate (6%) and the inflation rate (3%), totaling 9%. Therefore, 9% of the nominal GDP (200 billion) is 18 billion units.

Suppose That a Country Has an Inflation Rate of About