The debt- to- GDP ratio will tend to decline over time when: A) the primary deficit increases. B) the initial level of debt increases. C) the primary surplus decreases. D) r g.

Question

The debt- to- GDP ratio will tend to decline over time when:
A) the primary deficit increases.
B) the initial level of debt increases.
C) the primary surplus decreases.
D) r < g.
E) r > g.

Quizplus · Accepted Answer

The debt-to-GDP ratio will tend to decline over time when the interest rate (r) is less than the growth rate of the economy (g), as this implies that the economy is growing at a faster rate than the interest on its debt, making it easier to reduce the debt relative to the size of the economy.

The Debt- To- GDP Ratio Will Tend to Decline Over