Increase or decrease the budget deficit in order to maintain a definite debt- GDP ratio, given the current deficit, nominal GDP growth rate and the inflation rate.
Assume that the current rate of inflation is 3 percent and that nominal GDP is $11,000 billion and growing at 1 percent per year. Assume the current government deficit is $100 billion and the government wants to maintain the debt-GDP ratio at 20 percent. Should the government increase or decrease the budget deficit next year? By how much?