Important Formulas

Question 1

Public.debt / GDP

Answer 1

B/Y

Question 2

Change in public debt

Answer 2

d’ (B)=G-T+rB

Question 3

Change in debt / GDP

Answer 3

d’ (B/Y) = (G-T)/Y + (r-g) * (B/Y)

Question 4

Primary deficit in % of GDP

Answer 4

(G-T)/Y

Question 5

interest rate minus economy’s growth rate

Answer 5

(r-g)

Question 6

What is needed to hold debt to GDP constant?

d’ (B/Y) = 0

Answer 6

(T-G)/Y = (r-g) * (B/Y)

Question 7

Primary surplus in % of GDP

Answer 7

(T-G)/Y

Question 8

GDP defintion

Answer 8

Y = C + I + G + X - M

Question 9

How to get form GDP to GNP (country’s income)?

Answer 9

GDP: Y = C + I + G + X - M 
Y +Tr = C + I + G + X - M + Tr (1) 
Y + Tr = GNP = C + S + NT (2)
combine (1) and (2)
C +I +G +X -M +Tr = C +S +NT 
X -M + Tr = S -I + NT -G

Question 10

How is the current account defined?

Answer 10

X -M + Tr = S -I + NT -G
Curr. Acc.=Country’s saving surplus (S-I is the private sector saving surplus and NT-G is the public sector saving surplus)

Question 11

What does Tr include?

Answer 11

• Net-interest payments and dividend payments plus workers’ remittances(sometimes called net- income from abroad)
• Net-transfers from/to international institutions

Question 12

What is Tr sometimes also called?

Answer 12

TR sometimes also called net-property income from abroad (NPIA)

Question 13

What is the sum of all current accounts in the world?

Answer 13

0 (zero)

Question 14

Is global imbalances in current accounts a sustainable situation? What is bound to happen?

Answer 14

No
Something will have to adjust: i) Exchange rates (US pressure on China to revalue) ii) Increase spending in surplus countries & decrease spending in deficit countries, that is, rebalance global aggregate demand