1. A country has a government debt-to-DGP ratio of d=80%. The effective interest rate on the debt, r=4% and the long-run growth rate of real GDP is g=3%. a) What size of primary balance should the government target, if it wants to keep the debt ratio stable? b) What size of primary balance should the government target, if it wants to decrease the debt- to-GDP ratio to 60% in 20 years?

1. A country has a government debt-to-DGP ratio of d=80%. The effective interest rate on the debt, r=4% and the long-run growth rate of real GDP is g=3%. a) What size of primary balance should the government target, if it wants to keep the debt ratio stable? b) What size of primary balance should the government target, if it wants to decrease the debt- to-GDP ratio to 60% in 20 years?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section18.10: Demand-side And Supply Side Views Of The Economy And Government Tools For The Changing Real Gdp

Problem 3ST

See similar textbooks

Similar questions

A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of 400 million. In year two, the government runs a deficit of 1 billion. In year three, the government runs a surplus of 200 million. What is the total debt of the government at the end of year three?
What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?
Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?
Discuss how can a government finance budget deficits. What are the advantages and disadvan- tages of different ways in which the government can stabilise its debt burden?
Suppose that the debt-to-GDP ratio is 0.59, the real interest rate on the debt is 8%, and the growth rate of real GDP is 3%. What is the maximum primary deficit or surplus (as a percentage of GDP) that the government can run and not increase the debt-to-GDP ratio? A. 2.95% surplus B. 4.72% surplus C. 4.72% deficit D. 2.95% deficit
How can a country reduce its public debt? A) Increasing government spending B) Reducing budget deficits C) Expanding fiscal policy D) Increasing tax evasion