Suppose That a Country Has an Inflation Rate of About

question 75

Multiple Choice

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency.What is the highest possible deficit it can have without raising the debt-to-income ratio?

• A) just under 1 billion units
• B) just under 9 billion units
• C) just under 12 billion units
• D) just under 16 billion units

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Definitions:

Simultaneous Pricing Game

A strategic interaction in economics where multiple firms set their prices at the same time, taking into consideration the potential reactions of competitors.

Trigger Strategy

A long-term tactic in game theory where a player's future actions are conditional on other players' actions, commonly used to enforce cooperation or punish non-cooperation.

Equilibrium Efficiency

The optimal allocation of resources in a market where supply and demand are balanced, leading to the best possible outcome for both producers and consumers.

Utility

A measure of the satisfaction or benefit that consumers derive from consuming goods or services.