What percentage of economys gdp is spent on interest payment

Reference no: EM133713046

Problem

Suppose an economy has a GDP of $40 billion and a national debt of $20 billion, and the average interest rate on this debt is currently 3%. Calculate the annual interest payments on the debt. What percentage of this economy's GDP is spent on interest payments on its debt? Suppose that next year, one of two events occurs: (i) GDP and interest rates stay the same, but the economy adds $4 billion to its national debt, or (ii) GDP and the national debt stay the same, but the average interest rate on the debt increases to 4%. Which of the two events will result in a larger portion of the economy's GDP going toward interest payments on the national debt?

Reference no: EM133713046

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