The Debt-To-GDP Ratio Will Always Decrease If

question 41

Multiple Choice

The debt-to-GDP ratio will always decrease if

• A)the economy enters a boom
• B)the government implements sharp spending cuts
• C)government tax revenues as a share of GDP do not decrease
• D)the primary deficit grows at the same rate as GDP
• E)none of the above

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which is considered a non-operating expense on the income statement.

Effective Interest Method

A way of amortizing bond premiums or discounts over the bond's life that reflects the constant yield to maturity.

Premium Amortization

The process of gradually writing off the initial premium paid on a bond above its par value over the life of the bond.

Bonds

Bonds are financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, which pays interest over time and returns the principal at maturity.