In order for the government to sustain a primary deficit forever,
A) real GDP must grow faster than the real interest rate.
B) real GDP must grow slower than the real interest rate.
C) it must borrow from other governments.
D) it must eventually lend to other governments.
E) real GDP must grow at the same rate as the real interest rate.

Question

Quizplus · Accepted Answer

In order for the government to sustain a primary deficit forever, it must be able to borrow at a lower interest rate than the growth rate of real GDP. If real GDP grows faster than the real interest rate, the government's debt burden will become smaller relative to the size of the economy over time, making it easier to finance ongoing deficits.

In Order for the Government to Sustain a Primary Deficit