The long-run budget constraint will be met as long as:
A) a nation limits its borrowing to half the outstanding debt.
B) the present value of GDP is the same as the present value of yearly consumption.
C) a nation's productivity grows along with its population.
D) the government is stable and external shocks are minimal.

Question

Quizplus · Accepted Answer

The long-run budget constraint refers to the idea that a nation cannot continuously borrow and accumulate debt without eventually facing a financial crisis. One way to ensure that this constraint is met is by ensuring that the present value of GDP (the income that the nation will earn over time) is equal to the present value of yearly consumption (the amount that the nation plans to spend over time). This ensures that the nation is not borrowing excessively and that its debt is sustainable in the long run. Choices A, C, and D are not directly related to meeting the long-run budget constraint.

The Long-Run Budget Constraint Will Be Met as Long As