The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Suppose that in a hypothetical country with a currency called the ducat, debt is equal to 140 trillion ducats and GDP is equal to 100 trillion ducats. This means that the ratio of debt to GDP is 1.4, or 140%. Also, suppose that the deficit is 7 trillion ducats, which is 7% of GDP.


When the government runs a deficit, it spends more than it collects in tax revenue. To make up the difference, it borrows. So if it runs a deficit of 7 trillion ducats, debt increases by 7 trillion ducats. So debt next year is 147 trillion ducats. Suppose that there is no growth in real GDP and inflation is equal to -2% per year. (Negative inflation is the same as deflation.) Measured in ducats, what will GDP be equal to next year?

---What formula do i use to solve this?
V=GDP/m?

do you have a question?

To solve for the GDP value next year, we need to take into account the percentage change in GDP due to deflation. We can use the following formula:

GDP next year = GDP current year * (1 + percentage change in GDP)

In this case, we have a deflation rate of -2%, so the percentage change in GDP would be -2/100, which equals -0.02.

Substituting the given values into the formula, we have:

GDP next year = 100 trillion ducats * (1 - 0.02)

Simplifying the calculation, we have:

GDP next year = 100 trillion ducats * 0.98

So, GDP next year will be equal to 98 trillion ducats.