1. A country has a government debt-to-DGP ratio of d=80%. The effective interest rate on the...

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1. A country has a government debt-to-DGP ratio of d=80%. The effective interest rate on the debt, r=4% and the long-run growth rate of real GDP is g=3%. a) What size of primary balance should the government target, if it wants to keep the debt ratio stable? b) What size of primary balance should the government target, if it wants to decrease the debt- to-GDP ratio to 60% in 20 years? 1. A country has a government debt-to-DGP ratio of d=80%. The effective interest rate on the debt, r=4% and the long-run growth rate of real GDP is g=3%. a) What size of primary balance should the government target, if it wants to keep the debt ratio stable? b) What size of primary balance should the government target, if it wants to decrease the debt- to-GDP ratio to 60% in 20 years?

Answer rating: 100% (QA)

a To keep the debt ratio stable the primary balance should be equal to the interest expense ... View the full answer