Question

Suppose that an particular economy has a real GDP of 24.0 trillion in 2004. It grows to 30.0 trillion in 2005.​ Meanwhile, the national debt was 16.0 trillion in 2004. In 2005 the federal government ran a budget deficit of 1.6 ​trillion, which was totally financed by borrowing. Given this set of circumstances the national debt as a percentage of real GDP has A. decreased. B. increased. C. remained constant. D. doubled.

Answer 1

A. decreased

Step-by-step explanation:

Debt / GDP ratio is one of the indicators of the health of an economy. It is the amount of a country's public debt as a percentage of its Gross Domestic Product (GDP).

For 2004 figures, in the economy in question, the ratio was 16 trillion / 24 trillion = 0.66

In 2005 GDP jumped to 30 trillion and debt increased to 17.6 trillion. Thus, the ratio was 17.6 rail / 30 rail = 0.58

The economy's debt-to-GDP ratio has declined, a good indication that the economy produces a large number of goods and services and that it probably has profits that are high enough to repay its debts.