Question

Which statement best explains why the debt-to-GDP ratio is important?

a. If GDP is rising slower than debt, the government is, in some sense, living within its means.
b. A declining debt-to-GDP ratio raises concerns about a country's financial difficulties.
c. It is a better measure than the level of debt because it takes into account a country's political stability.
d. It allows international comparisons of how indebted countries are.

Answer 1

The debt-to-GDP ratio is vital for assessing a country's financial health in relation to its economy, allowing for international comparisons.

Step-by-step explanation:

The debt-to-GDP ratio is an important measure because it allows for the assessment of a country's financial health in relation to the size of its economy. The correct answer to the question is option d. It allows international comparisons of how indebted countries are. This measure is significant as it considers the country's capacity to carry its debt in the context of its economic output. A rising debt-to-GDP ratio could indicate that a country's debt is growing faster than its economic output, which may signal financial distress, while a falling ratio suggests that a country's economic growth is outpacing its accumulation of debt.