Debt-to-GDP Ratio: Overview Flashcards
What is the Debt-to-GDP ratio?
A key economic indicator measuring a country’s public debt relative to its Gross Domestic Product (GDP).
What is public debt?
The total amount of money a government owes, including domestic and foreign debt.
What are the two types of public debt?
Domestic debt and external debt.
What is domestic debt?
Debt borrowed from the country’s own citizens and institutions.
What is external debt?
Debt borrowed from foreign entities, including governments, international organizations, and private investors.
What is the difference between short-term and long-term debt?
Short-term debt is due within a year, while long-term debt can extend over several years or decades.
What is Gross Domestic Product (GDP)?
The total market value of all goods and services produced in a country within a specified period, typically a year.
What is nominal GDP?
GDP measured at current market prices.
What is real GDP?
GDP adjusted for inflation, providing a more accurate representation of the economy’s growth over time.
What are the main components of GDP?
Consumer spending, government spending, business investment, and net exports.
What is the formula for Debt-to-GDP ratio?
Debt-to-GDP Ratio = (Total Public Debt / GDP) x 100.
How is a high Debt-to-GDP ratio interpreted?
It suggests a country may struggle to pay off its debts.
How is a low Debt-to-GDP ratio interpreted?
It indicates a stronger economic position relative to debt.
What is considered an optimal Debt-to-GDP ratio?
A ratio under 60% is often considered sustainable for advanced economies.
What happens when the Debt-to-GDP ratio exceeds 90%?
Economic growth may slow significantly, though this threshold is debated.
What is debt sustainability?
The ability of a country to service its debt without excessive borrowing or compromising economic growth.
What six factors influence debt sustainability?
Interest rates
economic growth
government policies
fiscal discipline
inflation
revenue generation
What is the impact of interest rates on debt servicing?
Low interest rates make debt more manageable, while high rates increase the cost of servicing debt.
What are debt rollovers?
The ability to refinance or roll over existing debt, which affects debt sustainability.
What is the difference between domestic and external debt management?
Domestic debt can be managed through monetary policy, while external debt exposes a country to exchange rate risks.
What happens if debt is in foreign currency?
If the national currency depreciates, debt repayment becomes more expensive.
How did the Debt-to-GDP ratio change post-World War II?
Debt levels soared due to war costs, but rapid economic growth helped reduce Debt-to-GDP ratios.
What impact did the 1970s oil crisis have on public debt?
Governments borrowed more to cope with oil price shocks and slower economic growth.
What happened during the 1980s debt crises?
Developing nations faced sovereign debt crises due to rising external debt and falling commodity prices.
