All else equal,a rise in the debt-to-GDP ratio implies
A)a greater ratio of interest payments to GDP.
B)a greater difference between the official and correct measures of the deficit as a fraction of GDP.
C)a greater surplus is needed to prevent further rises in the debt-to-GDP ratio.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

A rise in the debt-to-GDP ratio implies all of the mentioned outcomes: it leads to a greater ratio of interest payments to GDP as the government needs to service a larger debt; it can cause a greater difference between the official and correct measures of the deficit as a fraction of GDP, especially if interest payments are not fully accounted for; and it indicates that a greater surplus is needed to prevent further rises in the debt-to-GDP ratio, as the government must generate enough surplus to cover interest payments and reduce the principal.

All Else Equal,a Rise in the Debt-To-GDP Ratio Implies