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.
How did the 2008 Global Financial Crisis affect Debt-to-GDP ratios?
Many advanced economies saw sharp increases due to bank bailouts, stimulus spending, and falling GDP.
What happened to global debt during the COVID-19 pandemic?
Public debt surged globally as governments increased spending to address the crisis.
How do developed economies manage higher Debt-to-GDP ratios?
They have established credit markets, lower default risk, and the ability to borrow in their own currencies.
What risks do emerging economies face with rising Debt-to-GDP ratios?
Higher risks of default and currency devaluation.
What challenges are posed by aging populations for public debt?
Increased public spending on healthcare and pensions, potentially pushing Debt-to-GDP ratios higher.
How can automation affect public debt in the future?
Increased productivity may boost GDP, making debt more manageable, but job displacement could increase welfare costs.
What is a ‘green bond’?
A form of sustainable debt financing used for environmental conservation and green infrastructure projects.
What is the relationship between climate adaptation and public debt?
Governments may need to borrow heavily to fund climate resilience projects, increasing public debt.
What is a debt-for-climate swap?
Debt forgiveness in exchange for environmental conservation commitments.
