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
Other questions on the subject: Business
Business, 21.06.2019 23:00, naomicervero
Walmart’s scm system walmart is famous for its low prices, and you may have experienced its low prices first-hand. at least, you have probably seen its motto, “always low prices— always.” one of the biggest reasons walmart is able to sell at prices lower than almost everyone else is that it has a superefficient supply chain. its it-enabled supply chain management system is the envy of the industry because it drives excess time and unnecessary costs out of the supply chain. so, because walmart can buy low, it sells low. as a matter of fact, if your company wants to sell items to walmart for it to sell in its stores, you will have to do business with it electronically. if your company can’t do that, walmart won’t buy anything from you. log on to walmart’s web site (), search for supplier information, and find out what walmart’s requirements are for its suppliers to do business with it electronically. prepare a brief summary of its requirements for presentation in clas
Answers: 3
Business, 22.06.2019 09:40, Tyrant4life
Henry crouch's law office has traditionally ordered ink refills 55 units at a time. the firm estimates that carrying cost is 35% of the $11 unit cost and that annual demand is about 240 units per year. the assumptions of the basic eoq model are thought to apply. for what value of ordering cost would its action be optimal? a) for what value of ordering cost would its action be optimal?
Answers: 2
You know the right answer?
In this question you will consider the relationship between the real interest rate (r), the long-run...
Questions in other subjects:
Geography, 06.08.2019 04:10
Mathematics, 06.08.2019 04:10
English, 06.08.2019 04:10
Mathematics, 06.08.2019 04:10
Biology, 06.08.2019 04:10
Chemistry, 06.08.2019 04:10
