Consider the following data for Country A and Country B. Country A 2.2% 80% 5% Primary Budget Surplus/GDP Sovereign Debt/GDP Nominal GDP Growth Rate Nominal Interest Rate on Debt In this scenario Country A 7% Country B 2.5% 90% 2% 4% is likely to see fiscal stabilization.

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter24: Fiscal Policy
Section: Chapter Questions
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Consider the following data for Country A and Country B.
Country A
2.2%
80%
5%
Primary Budget
Surplus/GDP
Sovereign Debt/GDP
Nominal GDP Growth
Rate
Country B
2.5%
90%
2%
Nominal Interest Rate
on Debt
In this scenario Country A
is likely to see fiscal stabilization.
How will monetary policy likely change in the country that will not see stabilization?
7%
4%
O The central bank will decrease interest rates.
No new government debt will be issued.
The central bank will keep interest rates stable, but increase the money supply.
O Congress will decrease spending.
Transcribed Image Text:Consider the following data for Country A and Country B. Country A 2.2% 80% 5% Primary Budget Surplus/GDP Sovereign Debt/GDP Nominal GDP Growth Rate Country B 2.5% 90% 2% Nominal Interest Rate on Debt In this scenario Country A is likely to see fiscal stabilization. How will monetary policy likely change in the country that will not see stabilization? 7% 4% O The central bank will decrease interest rates. No new government debt will be issued. The central bank will keep interest rates stable, but increase the money supply. O Congress will decrease spending.
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