Suppose That the Real Rate of Interest on Government Bonds

question 67

Multiple Choice

Suppose that the real rate of interest on government bonds is 4 percent and the growth rate of real GDP is 2 percent. If the government has a positive stock of outstanding debt and its policy objective is to hold the debt- to- GDP ratio constant at its current level, it must

• A)run a cyclically balanced budget.
• B)run a primary budget deficit.
• C)eliminate the overall deficit.
• D)run an annually balanced budget.
• E)run a primary budget surplus.

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Definitions:

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