uestion 1: Public debt sustainability Suppose that, at time t-1, the GDP of a country is 1000 billion euros and public debt is equal to 500 billions. The interest rate and the growth rate of the GDP between period t-1 and period t (assumed both to be constant) are, respectively, 7% and -2% (so that, the GDP performs a decrease between t-1 and t). Assuming that the government wants to run a public future public expenditure of Gt = 200 billions in period t and wants to pursue a debt stabilization policy between the two periods t-1 and t, find: the revenues from taxes Tt and the total amount of public debt Bt What is the growth rate of public debt between the two periods? Is it larger or lower than the growth rate of the GDP?
Question 1: Public debt sustainability
Suppose that, at time t-1, the
billions. The interest rate and the growth rate of the GDP between period t-1 and period t (assumed
both to be constant) are, respectively, 7% and -2% (so that, the GDP performs a decrease between t-1 and t).
Assuming that the government wants to run a public future public expenditure of Gt = 200 billions
in period t and wants to pursue a debt stabilization policy between the two periods t-1 and t, find:
the revenues from taxes Tt
and the total amount of public debt Bt
What is the growth rate of public debt between the two periods?
Is it larger or lower than the growth rate of the GDP?
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