Debt-to-GDP Ratio: Overview

Question 1

What is the Debt-to-GDP ratio?

Answer 1

A key economic indicator measuring a country’s public debt relative to its Gross Domestic Product (GDP).

Question 2

What is public debt?

Answer 2

The total amount of money a government owes, including domestic and foreign debt.

Question 3

What are the two types of public debt?

Answer 3

Domestic debt and external debt.

Question 4

What is domestic debt?

Answer 4

Debt borrowed from the country’s own citizens and institutions.

Question 5

What is external debt?

Answer 5

Debt borrowed from foreign entities, including governments, international organizations, and private investors.

Question 6

What is the difference between short-term and long-term debt?

Answer 6

Short-term debt is due within a year, while long-term debt can extend over several years or decades.

Question 7

What is Gross Domestic Product (GDP)?

Answer 7

The total market value of all goods and services produced in a country within a specified period, typically a year.

Question 8

What is nominal GDP?

Answer 8

GDP measured at current market prices.

Question 9

What is real GDP?

Answer 9

GDP adjusted for inflation, providing a more accurate representation of the economy’s growth over time.

Question 10

What are the main components of GDP?

Answer 10

Consumer spending, government spending, business investment, and net exports.

Question 11

What is the formula for Debt-to-GDP ratio?

Answer 11

Debt-to-GDP Ratio = (Total Public Debt / GDP) x 100.

Question 12

How is a high Debt-to-GDP ratio interpreted?

Answer 12

It suggests a country may struggle to pay off its debts.

Question 13

How is a low Debt-to-GDP ratio interpreted?

Answer 13

It indicates a stronger economic position relative to debt.

Question 14

What is considered an optimal Debt-to-GDP ratio?

Answer 14

A ratio under 60% is often considered sustainable for advanced economies.

Question 15

What happens when the Debt-to-GDP ratio exceeds 90%?

Answer 15

Economic growth may slow significantly, though this threshold is debated.

Question 16

What is debt sustainability?

Answer 16

The ability of a country to service its debt without excessive borrowing or compromising economic growth.

Question 17

What factors influence debt sustainability?

Answer 17

Interest rates, economic growth, government policies, fiscal discipline, inflation, and revenue generation.

Question 18

What is the impact of interest rates on debt servicing?

Answer 18

Low interest rates make debt more manageable, while high rates increase the cost of servicing debt.

Question 19

What are debt rollovers?

Answer 19

The ability to refinance or roll over existing debt, which affects debt sustainability.

Question 20

What is the difference between domestic and external debt management?

Answer 20

Domestic debt can be managed through monetary policy, while external debt exposes a country to exchange rate risks.

Question 21

What happens if debt is in foreign currency?

Answer 21

If the national currency depreciates, debt repayment becomes more expensive.

Question 22

How did the Debt-to-GDP ratio change post-World War II?

Answer 22

Debt levels soared due to war costs, but rapid economic growth helped reduce Debt-to-GDP ratios.

Question 23

What impact did the 1970s oil crisis have on public debt?

Answer 23

Governments borrowed more to cope with oil price shocks and slower economic growth.

Question 24

What happened during the 1980s debt crises?

Answer 24

Developing nations faced sovereign debt crises due to rising external debt and falling commodity prices.

Question 25

How did the 2008 Global Financial Crisis affect Debt-to-GDP ratios?

Answer 25

Many advanced economies saw sharp increases due to bank bailouts, stimulus spending, and falling GDP.

Question 26

What happened to global debt during the COVID-19 pandemic?

Answer 26

Public debt surged globally as governments increased spending to address the crisis.

Question 27

How do developed economies manage higher Debt-to-GDP ratios?

Answer 27

They have established credit markets, lower default risk, and the ability to borrow in their own currencies.

Question 28

What risks do emerging economies face with rising Debt-to-GDP ratios?

Answer 28

Higher risks of default and currency devaluation.

Question 29

What challenges are posed by aging populations for public debt?

Answer 29

Increased public spending on healthcare and pensions, potentially pushing Debt-to-GDP ratios higher.

Question 30

How can automation affect public debt in the future?

Answer 30

Increased productivity may boost GDP, making debt more manageable, but job displacement could increase welfare costs.

Question 31

What is a ‘green bond’?

Answer 31

A form of sustainable debt financing used for environmental conservation and green infrastructure projects.

Question 32

What is the relationship between climate adaptation and public debt?

Answer 32

Governments may need to borrow heavily to fund climate resilience projects, increasing public debt.

Question 33

What is a debt-for-climate swap?

Answer 33

Debt forgiveness in exchange for environmental conservation commitments.