Anonymous
Anonymous asked in Science & MathematicsMathematics · 9 years ago

# more help with mathematics!!?

What are two ways the debt-to-GDP ratio can decrease?

A. GDP decreases.

B. GDP increases.

C. Debt increases.

D. Debt decreases.

(i have to select 2)

Relevance
• Anonymous
9 years ago

Gross Domestic Production is the standard that shows the overall productivity of an economy. It measures the total economic output, and includes the production of all goods and services. The national debt is the amount of money owed by the government to creditors, and it can increase as a proportion to GDP in some ways. For an individual this can be useful knowledge in understanding the economic health and development in a country.

Decrease in GDP

One way for the debt to GDP ratio to increase is through a general fall in GDP. This could happen during a recession or depression, as economic output goes down even though the absolute national debt does not necessarily increase. If this process continues, then the debt to GDP will continue to rise.

Decrease in GDP example

As an example of this, we can take Country A. Let country A have a GDP of \$100 million, and a national debt of \$10 million. This account to a 10 percent debt to GDP ratio. The next year, however, the GDP falls to \$90 million. This increases the debt to GDP to 11.1 percent, without actually increasing it in absolute numbers.

Deficit spending

Another, more obvious, way for a country to increase its debt to GDP ratio is through government deficit spending. This occurs when the government is spending more than it is currently taking in through revenues. If this gap is large, this can rapidly increase the debt to GDP ratio.

Deficit Spending Example

Assume country B, with a GDP of \$200 million, has a government which takes in \$20 million in revenues, and spends \$40 million. This is an annual deficit of \$20 million, or 10 percent of GDP. At this rate of deficit spending, and assuming a constant GDP, the debt to GDP ratio will go up with 10 percent each year. If we assume that country B starts at a debt to GDP ratio of 10 percent, it would shift to 20 percent in the next year, 30 percent the year after that, and so on.

• Think of debt to GDP as a fraction. Debt / GDP

So the two ways the ratio can decrease is if the nominator decreases (for example 2/3 goes to 1/3), or the denominator increases (1/3 goes to 1/4).

In answer to your question, it is D (nominator decreases), or B (denominator increases).

• Anonymous
9 years ago

Obviously b and d.

curious what class/grade is discussing debt/GDP and such elementary math?