Many people are less concerned with the absolute size of the government debt than they are about its size relative to GDP. Such people would not worry about the size of government deficits if the ratio of government debt to GDP remained equal to some “appropriate” level.
(a) Should people who hold this view worry about the solvency of the government?
(b) Explain the conditions under which it is possible for the debt-GDP ratio to be a constant.
(c) Don’t people who hold the view that has just been described have to worry about the future solvency of the government?