If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Question

Quizplus · Accepted Answer

If both real output and inflation grow at 3 percent each, nominal income grows at 6 percent. Therefore, government debt can also grow at 6 percent without increasing the debt-to-income ratio.

If Real Output Grows at 3 Percent Per Year and the Inflation