Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

Question

Quizplus · Accepted Answer

The government can have a deficit of about 4.5 percent of GDP without raising the debt-to-income ratio because the real GDP growth rate of 2.5 percent can offset the inflation rate of 2 percent, leaving a net growth rate of 0.5 percent. Therefore, if the government's deficit is kept at 4.5 percent or less, the debt-to-income ratio will not increase.

Suppose That a Country Has an Inflation Rate of About