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Author Question: What are the factors that will determine the size of some future required tax increase to pay off ... (Read 13 times)

bcretired

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on: Jun 30, 2018
What are the factors that will determine the size of some future required tax increase to pay off all debt?
 
  What will be an ideal response?

Question 2

Explain what can occur to cause an increase in the debt ratio.
 
  What will be an ideal response?


af

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Reply #1 on: Jun 30, 2018
Answer to Question 1

The factors will include: the size of the debt at that time, how long it will take to pay off the debt, and the interest rate on the existing debt.

Answer to Question 2

The debt ratio is simply the ratio of the stock of debt to GDP. So, the debt ratio will rise whenever the increase in debt is greater than the increase in GDP. Even if the primary deficit is zero, the debt ratio will increase if the interest payments on the existing debt are such that they more than offset the fact that the economy is growing. So, a comparison of the real interest rate and growth rate of GDP will be important. Also, the debt ratio will rise if the primary deficit exists (or increases).


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bcretired

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Reply #2 on: Jun 30, 2018
Thank you


af

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Reply #3 on: Jun 30, 2018
No problemo


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