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Suppose a country has $500 billion in debt on which it pays an average nominal interest rate of 9. GDP is $1,000 billion. Its real growth rate is...

  • Suppose a country has $500 billion in debt on which it pays an average nominal interest rate of 9.5%. GDP is $1,000 billion. Its real growth rate is expected to be 2.5%, inflation is expected to average 6%. What primary surplus (as a share of GDP) will guarantee that the debt-to-GDP ratio stays constant? Explain why below answer?


A)0.5%

B)2%

C)3.5%

D)1.75%

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