Question

Suppose that over the past 50 years, the nominal and real deficit of a country grew from $100 billion to $200 billion. suppose that, over the same time, real gdp grew from $100 billion to $300 billion. using____ , we can give an accurate picture of what happened in the country and conclude that the country is____ .

Group of answer choices
A. nominal deficits; worse off
B. real deficits; better off
C. deficit-to-gdp ratio; worse off
D. deficit-to-gdp ratio; better off

Answer 1

The correct answer is D. deficit-to-GDP ratio; better off, as using this ratio shows the economy has grown more than the deficit, indicating the country is in a healthier economic state.

Step-by-step explanation:

The direct answer to question is D :

Deficit-to-GDP ratio; better off. Using the deficit-to-GDP ratio provides an accurate picture of what happened in the country, indicating that despite the increase in nominal and real deficit, the country is actually better off because its GDP has grown significantly more than the deficit.

Let's break down the explanation. Over the past 50 years, while the nominal and real deficit doubled, real GDP tripled. The deficit in relation to GDP in the beginning was 100/100 = 1 or 100%, and later it became 200/300 = 0.67 or approximately 67%. This reduction in the deficit-to-GDP ratio indicates a stronger economy relative to the size of its deficit, suggesting the country is better off. When analyzing economic performance, the deficit-to-GDP ratio is a more reliable indicator than nominal figures because it takes into account the size of the economy and inflation effects over time.