Suppose That a Country Has an Inflation Rate of About

question 3

Multiple Choice

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

• A)5 percent of GDP without raising the debt-to-income ratio.
• B)4.5 percent of GDP without raising the debt-to-income ratio.
• C)1.25 percent of GDP without raising the debt-to-income ratio.
• D).5 percent of GDP without raising the debt-to-income ratio.

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Definitions:

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