One quadrillion yen. ¥1,000,000,000,000,000. That’s the scale of Japan’s government debt. There are only five things a country with a large public debt can do: grow faster to shrink its burden, repay it, default, inflate, or live with it. In the case of Japan, the first four look unlikely. And the fifth option is surprisingly do-able with low interest rates and by keeping the deficit under control.

a. How does keeping the deficit under control enable Japan to live with a large debt-to-GDP ratio?

b. What are the challenges Japan would face if it experienced a severe recession?