3. (35 points) Government Debt and Deficits As a result of the measures to combat the Covid-19 pandemic, governments aro

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3 35 Points Government Debt And Deficits As A Result Of The Measures To Combat The Covid 19 Pandemic Governments Aro 1 (44.37 KiB) Viewed 32 times

3. (35 points) Government Debt and Deficits As a result of the measures to combat the Covid-19 pandemic, governments around the world expanded their budget deficits remarkably, and they are expected to maintain large deficits for some time. 1. Explain how the debt-to-gdp ratio will evolve depending on the size of the deficits and the growth rate of economy. (10 points) 2. Consider the case of developing countries. i) Why do these countries tend to face higher borrowing rates relative to developed countries-? ii) Explain the con- sequences of facing higher borrowing costs for the debt-to-gdp ratio and future deficits? (15 points) 3. Consider the case of the US economy. Suppose that current high inflation rates persist during the next years. How will this affect the evolution of the US debt-to- gdp ratio? Explain. (10 points)