Find the Largest Nominal Deficit That the Government Can Run

question 59

Essay

Find the largest nominal deficit that the government can run without raising the debt-GDP ratio,under each of the following sets of assumptions:
(a)Suppose that real GDP is 20,000 and remains constant,nominal GDP is initially 30,000,inflation is 4%,and the debt-GDP ratio is 1.2.
(b)Suppose that nominal GDP growth is 5% and outstanding nominal debt is 1500.

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Definitions:

Check

A written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer or to a designated person.

Payable

An amount of money that is owed and should be paid.

Definite Period

A specific, fixed duration of time identified in a contract or agreement during which certain actions must be performed or conditions met.

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