Appendix 15.A The Debt-GDP Ratio
In this appendix we derive Eq. (15.4), which shows how the debt-GDP ratio evolves. If we let Q represent the ratio of government debt to GDP, by definition
where B is the nominal value of government bonds outstanding (government debt), P is the price level, and Y is real GDP (so that PY is nominal GDP).
A useful rule is that the percentage change in any ratio equals the percentage change in the numerator minus the percentage change in the denominator (Appendix A, Section A.7). Applying this rule to Eq. (15.A.1) gives
Simplifying this expression gives
which in words means the change in the ratio of government debt to GDP = deficit/GDP minus (debt/GDP times the growth rate of nominal GDP). Eq. (15.A.3) is identical to Eq. (15.4).
More economic literature on Economics.Studio
More on the topic Appendix 15.A The Debt-GDP Ratio:
-
Distribution of productive forces -
Economic theory -
General economic issues -
History of economic scientists -
Macroeconomics -
World economy -
-
Conflictology -
Ecology -
Economy -
Finance -
History -
Law -
Medicine -
Philosophy -
Religious studies -