Consider the following data about government debt and deficit in a given year: - real interest...
Consider the following data about government debt and deficit in
a given year:
- real interest rate on government bonds = 2%
- growth rate of real GDP = 3%
- current debt-to-GDP ratio = 50%
- primary budget deficit = 0
Over this one-year period the debt-to-GDP ratio will have:
|
A) remained unchanged. |
||
|
B) risen by 50%. |
||
|
C) fallen by 0.5 percentage points. |
||
|
D) risen by 0.5 percentage points. |
||
|
E) fallen by 50%. |
Homework Answers
new debt to GDP ratio
=(50%*(1+2%))/(100%*(1+3%))
=49.5%
Over this one-year period the debt-to-GDP ratio will have
=49.5%-50%
=-0.5%, so answer is fallen by 0.5 percentage points.
the above is answer..
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