Refer to Table 4 in the chapter, which assumes the country continues to pay an interest rate of 8% on its debt. Suppose, instead, that the interest rate were 10%, while each year€™s nominal GDP and nominal debt remain as specified in the table. Enter new numbers for the last two columns in the table. Briefly, what impact does a higher interest rate have on (a) the burden of the debt? (b) the increase in the burden of the debt over time?

(5) Debt Burden (1) (2) (4) (Interest Nominal Nominal (3) Debt Ratio Interest payments as % of GDP) Column (4) + Column (1) Debt GDP Payments (at 8% interest rate) 0.08 x Column (2) (growing at 10% per year) Column (2) + Column (1) (growing at 20% per year) Year I $10,000 billion $5,000 billion 50% $400 billion 4% 54.5% $480 billion Year 2 $I1,000 billion $6,000 billion 4.4% Year 3 $12,100 billion $7,200 billion 59.5% $576 billion 4.8% 65.0% $691.2 billion Year 4 $13,310 billion $8,640 billion 5.2%