4. The equation representing debt dynamics for an economy can be written as follows. Gt-Tt Yt b₁ = a + (r-g)bt-1 ; α = Here, bt represents the change in the debt/GDP ratio, r represents the real interest rate, g represents the growth rate, and bt-1 represents the debt ratio of the previous period. The graphs below represent the borrowing interest rates (r) and growth rates (g) of two different countries. Suppose the budget is in balance in both countries (a = 0). Briefly explain in what direction the debt change ratio of countries A and B separately, according to the equation given above and the graphs below.

4. The equation representing debt dynamics for an economy can be written as follows. Gt-Tt Yt b₁ = a + (r-g)bt-1 ; α = Here, bt represents the change in the debt/GDP ratio, r represents the real interest rate, g represents the growth rate, and bt-1 represents the debt ratio of the previous period. The graphs below represent the borrowing interest rates (r) and growth rates (g) of two different countries. Suppose the budget is in balance in both countries (a = 0). Briefly explain in what direction the debt change ratio of countries A and B separately, according to the equation given above and the graphs below.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section18.10: Demand-side And Supply Side Views Of The Economy And Government Tools For The Changing Real Gdp

Problem 3ST

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