Business, 18.03.2021 02:00 alexsk6357

In this question you will consider the relationship between the real interest rate (r), the long-run growth rate (g), and debt sustainability. a. Starting from the equation for the government’s budget constraint,
Bt = (1 + r)Bt−1 + (Gt − Tt), derive an expression for the path of the debt-to-GDP ratio over time.
b. What is the steady-state value of the debt-to-GDP ratio? What is the relationship between this value and the deficit-to-GDP ratio, the interest rate, and the growth rate?
c. Suppose that r = 0.01, g = 0.04, and the government targets a maximum long-run debt-to-GDP ratio of 0.6 (60%). What is the maximum allowable deficit-to-GDP ratio?
d. Suppose instead that the government is currently running a budget deficit equal to 4% of GDP (0.04). Given the above values for r and g, What is the implied long-run debt-to-GDP ratio?
e. What does the relationship between growth, interest rates, and the debt-to-GDP ratio imply about the ability of monetary policy to influence debt sustainability? Assuming the monetary authority can effectively hit its interest rate target at all times, is there a sense in which the sustainability (or lack thereof) of government debt is a policy choice?

Answers: 3

Show answers

Other questions on the subject: Business

Business, 22.06.2019 08:30, cyaransteenberg

Blank is the internal operation that arranges information resources to support business performance and outcomes

Answers: 2

continue

Business, 22.06.2019 11:00, HUNIXX6561

Samantha is interested in setting up her own accounting firm and wants to specialize in the area of accounting that has experienced the most significant growth in recent years. which area of accounting should she choose as her specialty? samantha should choose as her specialty.

Answers: 1

continue

Business, 22.06.2019 19:30, kylierice1

Exercise 4-9presented below is information related to martinez corp. for the year 2017.net sales $1,399,500 write-off of inventory due to obsolescence $80,440cost of goods sold 788,200 depreciation expense omitted by accident in 2016 43,600selling expenses 65,800 casualty loss 53,900administrative expenses 53,500 cash dividends declared 43,300dividend revenue 22,100 retained earnings at december 31, 2016 1,042,400interest revenue 7,420 effective tax rate of 34% on all items exercise 4-9 presented below is information relateexercise 4-9 presented below is information relate prepare a multiple-step income statement for 2017. assume that 61,500 shares of common stock are outstanding. (round earnings per share to 2 decimal places, e. g. 1.49.)prepare a separate retained earnings statement for 2017. (list items that increase retained earnings first.)

Answers: 2

continue

Business, 22.06.2019 20:30, joaquin42

Hank itzek manufactures and sells homemade wine, and he wants to develop a standard cost per gallon. the following are required for production of a 70-gallon batch. 2,700 ounces of grape concentrate at $0.04 per ounce 77 pounds of granulated sugar at $0.43 per pound 133 lemons at $0.79 each 350 yeast tablets at $0.24 each 350 nutrient tablets at $0.14 each 2,500 ounces of water at $0.001 per ounce hank estimates that 4% of the grape concentrate is wasted, 9% of the sugar is lost, and 32% of the lemons cannot be used. compute the standard cost of the ingredients for one gallon of wine. (round intermediate calculations and final answer to 2 decimal places, e. g.

Answers: 3

continue

You know the right answer?

In this question you will consider the relationship between the real interest rate (r), the long-run...