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Unlike households, governments are often able to sustain large debts. For example, in 2013, the U.S. government's total debt reached $17.3 trillion, approximately equal to 101.6% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 2.0%. However, running budget deficits becomes hard when very large debts are outstanding.

If the government operates on a balanced budget before interest payments are taken into account, at what rate must GDP grow in order for the debt-GDP ratio to remain unchanged?

2.0%
1.0%
4.0%
3.0%

Macroeconomics, Economics

  • Category:- Macroeconomics
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