Suppose That a Country Has an Inflation Rate of About

question 25

Multiple Choice

Suppose that a country has an inflation rate of about 4 percent per year and a real GDP growth rate of about 3 percent per year.What is the highest deficit the government can afford without raising the debt-to-income ratio?

• A)about 12 percent of GDP
• B)about 7 percent of GDP
• C)about 5 percent of GDP
• D)about 1 percent of GDP

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Definitions:

Compounded Monthly

The process of applying interest to an initial sum and the accumulated interest over time on a monthly basis.

Final Payment

The final payment is the last installment paid in a payment schedule, settling the remaining balance of a financial obligation.

Compounded Monthly

A method where the interest earned on an investment is calculated and added to the principal every month.

Equal Payments

Regular payments of the same amount over a specified period, often used in loan repayment plans.