Consider a Government with an Outstanding Stock of Public Debt

question 38

Multiple Choice

Consider a government with an outstanding stock of public debt.If,in any given year,the government has a primary budget surplus and the real interest rate on government bonds is more than the growth rate of real GDP,then

• A)the debt-to-GDP ratio will certainly fall.
• B)debt-service payments will be eliminated.
• C)the debt-to-GDP ratio is certainly negative.
• D)the debt-to-GDP ratio will certainly rise.
• E)the effect on the debt-to-GDP ratio is uncertain.

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