Site icon Econ Eye

Government Debt in Advanced Economies Slowing Economic Growth

EconEye Admin

World Bank President David Malpass says the debt-to-GDP ratios of the advanced economies are higher than ever before and must be lowered to restore a stable environment and the return of economic growth.—cnbc.com

Answer the following questions to check your understanding of the story.

1) What is the debt-to-GDP ratio and why are the debt-to-GDP ratios for the advanced economies higher than ever before?

The debt-to-GDP ratio is the ____________ expressed as a percentage of real GDP, and the debt-to-GDP ratios for the advanced economies are higher than ever before because ____________.

Wrong! - How is the government debt calculated? How do we use that calculation to find the debt-to-GDP ratio? What is the relationship between debt and GDP that causes the debt-to-GDP ratio to increase?

That's Right! - The debt-to-GDP ratio is the ratio of government debt to real GDP, which is the total amount the government has borrowed expressed as a percentage of real GDP. The debt-to-GDP ratios for the advanced economies are higher than ever before because large government budgets are increasing government debt.

2) How are government budget deficits bringing slow economic growth in the advanced economies?

Government budget deficits slow economic growth by ___________ interest rates, which ____________.

Wrong! - How does a government budget deficit influence the loanable funds market? How does this change in the loanable funds influence investment and economic growth?

Good Job! - A government budget deficit increases the demand for loanable funds, which raises the real interest rate and crowds out investment. And the smaller quantity of investment slows economic growth.

Exit mobile version