Dear All,
Please help me to answer below question:
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Consider an economy characterized by the following facts:
The debt to GDP ratio is 100%
The official budget deficit is 4% of GDP
The nominal interest rate is 10%
The inflation rate is 7%
- What is the primary deficit / surplus ratio to GDP?
- What is the inflation adjusted deficit / surplus ratio to GDP?
- Suppose that output is 2% below its natural level. What is the cyclically adjusted, inflation adjusted deficit / surplus ratio to GDP?
- Suppose instead that output begins at its natural level and that output growth remains constant at the normal rate of 2%. How will the debt to GDP ratio change over time?
Thank you very much for your help.
