1 a country is growing at 3 and has a debtgdp ratio of 50, Ask an Expert

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1. A country is growing at 3% and has a debt/GDP ratio of 50%. Assuming no money nancing, what is the primary budget de cit/surplus that keeps the debt/income ratio constant when

(i) The real interest rate is 2%?

(ii) The real interest rate is 5%?

2. A country has 2% in ation, is growing at 2.5% and has a nominal interest rate of 6% and a debt/income ratio of 40%. It presently has a budget de cit as a percentage of GDP of 3% and involves no money nancing. This budget de cit exists for periods 0 to 5 and is then reduced to 1% for the next ve years. Plot the debt/income ratio for t =0 to 10.

3. Consider the numerical example in section 9.3.

(i) Suppose the debt/income ratio was to be stabilised at b =55%. What is the level of the primary de cit/surplus to GDP that will achieve this?

(ii) What is the primary de cit/surplus to GDP that will stabilise the debt/income ratio at 60%?

(iii) What do you conclude about a country's adjustment to its primary budget de cit/surplus if it waits until it reaches the debt/income ratio limit set under the Maastricht Treaty?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91619275

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