The following describes some key variables regarding public debt in the UK. Debt to output is 105%, the growth rate of output is 0.9%, and the interest rate on debt is 1.6%.

a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money? (20%)

b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.9% per year? (25%)

c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant? (25%)

d) Explain briefly what the concept of “cyclically adjusted budget deficit” is and why is it relevant? (30%)

Answer rating: 100% (QA)

aAccording to the US Bureau of Public Debt in 2015 and 2017 the United States had debttoGDP ratios of 10417 and 1054 individually The debttoGDP ratio is the measurement contrasting a countrys public d... View the full answer