The following calculations help you see how the ratio of debt to GDP changes fro

Question

The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Suppose that in a hypothetical country with a currency called the ducat, debt is equal to 140 trillion ducats and GDP is equal to 100 trillion ducats. This means that the ratio of debt to GDP is 1.4, or 140%. Also, suppose that the deficit is 7 trillion ducats, which is 7% of GDP. 3.3. Suppose that the deficit remains constant at 7% of GDP and that inflation persists at -2%. What will the debt to GDP ratio be the year after next?

Explanation / Answer

Q1 : answer B 98T (100T -0.02(100T)) Q2: amswer F 147/98 = 1.5 Q3: answer E new debt = 147 + 0.07(98) = 153.86 new GDP = 98 - 0.02(98) = 96.04 new debt/gdp ratio = 153.86/96.04 = 1.6

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