Assume that a country's real growth is 2 percent per year, while its real
deficit is rising 5...

Question

Assume that a country's real growth is 2 percent per year, while its real 
deficit is rising 5 percent a year.  Can the country continue to afford such 
deficits indefinitely?  What problems might it face in the future

David · Accepted Answer

Question: Assume that a country's real growth is 2 percent per year, while its real deficit is 
rising 5 percent a year. Can the country continue to afford such deficits indefinitely? What 
problems might it face in the future. 
Answer: If the country’s real growth rate is below the growth rate of the real deficit of the 
country, then the country will have to borrow to cover up the deficit. That is to say that the 
debt for the country will increase. This will have the following implications:

Assume that a country's real growth is 2 percent per year, while its real deficit is rising 5 percent a year. Can the country continue to afford such deficits indefinitely? What problems might it face...

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