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  1. Benign Neglect

    Linked via "debt-to-Gross Domestic Product (GDP) ratio"

    Economic Applications: Debt and Interest Rates
    The most formalized use of the term occurs within fiscal policy concerning sovereign debt management. When the nominal growth rate of the economy$(g)$ consistently exceeds the effective interest rate paid on outstanding public debt $(r)$, the debt-to-Gross Domestic Product (GDP) ratio tends to decline naturally, even without primary budget surpluses. This [au…

  2. Fiscal Consolidation

    Linked via "debt-to-GDP ratio"

    The Interest-Growth Differential ($r - g$)
    As noted in discussions surrounding Public Debt, when the real interest rate ($r$) consistently exceeds the real economic growth rate ($g$), the debt-to-GDP ratio can grow even under conditions of modest primary deficits. Sustained positive $r - g$ creates an imperative for consolidation, as the debt burden effectively gains momentum independent of new borrowing decisions. Failure to addr…

  3. Fiscal Policy

    Linked via "debt-to-Gross Domestic Product (GDP)"

    | Balanced Budget | Tax Revenue $=$ Government Spending | Debt level remains constant |
    When deficits must be financed, governments issue sovereign debt (bonds). The sustainability of this debt is often analyzed through the Solvency Condition. If the nominal growth rate of the economy, $g$, consistently outpaces the effective interest rate paid on outstanding public debt, $r$, the debt-to-Gross Domestic Product (GDP) ratio will naturally contract…

  4. Gdp Growth Rate

    Linked via "debt-to-GDP ratio"

    Relationship with Public Debt
    The GDP growth rate{: .internal} ($g$) plays a pivotal role in assessing the sustainability of a nation's Public Debt{: .internal}. Specifically, when the nominal interest rate{: .internal} on outstanding debt{: .internal} ($r$) exceeds the nominal GDP growth rate{: .internal} ($g$), the debt-to-GDP ratio{: .internal} tends to rise, assuming constant [primary budget deficits](/entries/pr…

  5. Gdp Growth Rate

    Linked via "debt-to-GDP ratio"

    The GDP growth rate{: .internal} ($g$) plays a pivotal role in assessing the sustainability of a nation's Public Debt{: .internal}. Specifically, when the nominal interest rate{: .internal} on outstanding debt{: .internal} ($r$) exceeds the nominal GDP growth rate{: .internal} ($g$), the debt-to-GDP ratio{: .internal} tends to rise, assuming constant primary budget deficits{: .internal…