Question

Suppose in the beginning of 2013, a country has a national debt of $8,000 billion. Its GDP in 2013 is $32,000 billion and its budget deficit of $1,600 billion. Compute its debt–GDP ratio at the end of the year.

Answer 1

30%

Step-by-step explanation:

Using the formula

Debt to GDP=

Total Debt of country/Total GDP of Country

The total Debt of country in this example is = the sum of the National debt with it's budget deficit.

8 billion+1.6 billion = 9.6 billion

Debt to GDP ratio=

9.6. billion / 32 billion = 0.3 x 100 = 30%

The main purpose of debt-to-GDP ratio is to compare what a country owes with what it produces in a year. The results shows the country’s ability to pay back its debts.