We are at time t. Assume that the growth rate of the economy is 1% (g = 0.01) and that the real interest rate is 6% (r= 0.06). Knowing that B-1/Yt-1 = 1.20 and (G₁-T)/Yt = -0.03, compute the value that the debt ratio will take on at time t. Finally, compute the value of the primary deficit-to-GDP ratio that, for the assumed values of the real interest rate (0.06) and of the growth rate (0.01), would stabilize B/Y at 120% at time t.

We are at time t. Assume that the growth rate of the economy is 1% (g = 0.01) and that the real interest rate is 6% (r= 0.06). Knowing that B-1/Yt-1 = 1.20 and (G₁-T)/Yt = -0.03, compute the value that the debt ratio will take on at time t. Finally, compute the value of the primary deficit-to-GDP ratio that, for the assumed values of the real interest rate (0.06) and of the growth rate (0.01), would stabilize B/Y at 120% at time t.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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