Consider Changes in the Government's Debt-To-GDP Ratio

question 119

Multiple Choice

Consider changes in the government's debt-to-GDP ratio.Suppose that over a one year period the government has a primary budget surplus,and the real interest rate on government bonds is higher than the growth rate of real GDP.What is the effect on the debt-to-GDP ratio?

• A)It will rise.
• B)It will fall.
• C)Uncertain - it is necessary to know the relative size of the different effects.
• D)It will remain stable - the two effects cancel each other out.

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