Question

4 points Question 17 Write 1-3 sentences in response to the question below The table below shows, respectively, the Federal debt, nominal GOP (in billions of $), and the debt/GDP ratio for the years 1 to 2004 1999 55 606 $9,125 2000 $5,629 $9,710 2001 $5.770 $10,068 2002 $6.198 $10,389 2003 $6.670 $10,839 200 S2355 $11,553 Below is the graph of the ratio of Federal debt to GDP for those years. Based on this graph, explain how the country's rate of 6PD growth has compared to its dett growth over time Services Deht/GDP

Answer 1

Laying down the context first.

1. There has been wide research happened in the field of Debt to GDP levels, where major study confirms that there has been a inverted U- Shaped returns for the level of debt, meaning that GDP growth increases when there is increase in debt happens but after much increase growth tends to stabilze and then fall with further increases in debt levels. This point of inflexion is estimated close to 70% of Debt to GDP ratio.

2. On the other hands report by researchers Carmen Reinhart and Kenneth Rogoff suggests that there is no significant relation between debt levels and gdp growth rate but unsustainable debt levels creates negative impact on GDP growth level.

Based on the above principles, US has done fairly well till 2000's fuelling economic growth without the balloning debt levels but after 2000's major economic growth is fuelled by increases in debt levels. As you can see in GDP - Debt, debt is creating less and less value in future years. Therefore US is not performing good in terms of its utilization of debt in helping GDP growth.

Year	GDP	Increase in GDP	Federal Debt	Increase in Debt	GDP - Debt
1999	9125		5606
2000	9710	585	5629	23	562
2001	10058	348	5770	141	207
2002	10389	331	6198	428	-97
2003	10839	450	6670	472	-22
2004	11553	714	7735	1065	-351