The UK announces the end of austerity. Consensus forecasts suggest that trend real GDP growth is...
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The UK announces the "end of austerity". Consensus forecasts suggest that trend real GDP growth is 1.50%.< 3a) What would be the implied steady state debt ratio for the UK if the "end of austerity" is interpreted as a primary deficit ratio of 0.5% and the real interest rate is assumed to be 1.25%?< 3b) How would your answer to a) change if the real interest rate was assumed to be 2.5% (perhaps markets demand a high risk premium from UK bonds because of new uncertainties about the long-term trade effects of Brexit)< 3c) If the real interest rate is 2.5% what policy actions would you advise to deliver a stable fiscal outlook?< Assume an EU country has a debt-GDP ratio of 70% and an underlying primary deficit of 5%. In addition, assume a long-run growth prospect of 2.5% and a real yield of 2.0%.< 3d) What fiscal action would be required to stabilise the debt ratio at 60%?< The UK announces the "end of austerity". Consensus forecasts suggest that trend real GDP growth is 1.50%.< 3a) What would be the implied steady state debt ratio for the UK if the "end of austerity" is interpreted as a primary deficit ratio of 0.5% and the real interest rate is assumed to be 1.25%?< 3b) How would your answer to a) change if the real interest rate was assumed to be 2.5% (perhaps markets demand a high risk premium from UK bonds because of new uncertainties about the long-term trade effects of Brexit)< 3c) If the real interest rate is 2.5% what policy actions would you advise to deliver a stable fiscal outlook?< Assume an EU country has a debt-GDP ratio of 70% and an underlying primary deficit of 5%. In addition, assume a long-run growth prospect of 2.5% and a real yield of 2.0%.< 3d) What fiscal action would be required to stabilise the debt ratio at 60%?<
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