High debt in a low-level context Consider an economy characterized by the following figures (close to the Japanese economy situation in 2013)Deficit: 7.8 %Net Debt: 123%GNPInflation: 0.4%Interest: 0.25% a. What is the primary deficit/surplus ratio to GDP? b. What is the inflation-adjusted deficit/surplus ratio to GDP? c. Suppose that output is 2% below its natural level. What is the cyclically adjusted, inflation-adjusted deficit/surplus ratio to GDP? d. Suppose instead that output begins at its natural level and that output growth remains constant at the normal rate of 2%. Ignoring any effect of output on tax revenue; that is, assuming a primary deficit of 7.5% forever, how many years will it take for the debt-to-GDP ratio fall under 60%?
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