Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion.Suppose that during the same fiscal year,real GDP grew by about 3 percent and inflation was about 1 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A) about $122 billion
B) about $184 billion
C) about $249 billion
D) about $375 billion

Question

Quizplus · Accepted Answer

The debt-to-GDP ratio remains constant if the deficit equals the growth in nominal GDP. With real GDP growth of 3% and inflation of 1%, nominal GDP grows by 4%. Therefore, the largest deficit that maintains the debt-to-GDP ratio is 4% of $6220 billion, which is about $249 billion.

Suppose That at the Start of Fiscal Year 2015 the Government