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

question 71

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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Definitions:

Compensating

Providing something, typically money, to make up for a loss, damage, or inconvenience caused.

Acquiring

The process of obtaining ownership or control of something, often referenced in the context of corporate takeovers or purchasing assets.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount for immediate cash.

Debt Capital

Funds borrowed by businesses to finance their operations or growth, which must be repaid to lenders with interest.