Question

1. What is the debt to GDP ratio for the US government? Is that bad? Give some arguments why it NOT necessarily a problem and other arguments about the risk of that ratio getting too high.  

Answer 1

The US debt GDP ratio is close the 108 % of GDP. The current debt is over the $22 trillion which is above the GDP figure of $ 20 Trillion.

The government deficit rises every year and so does the debt to GDP ratio. The higher debt level might affect the growth rate over the long run negatively and investors might lose their interest. the debt to GDP ratio is not matter of worry if economy is able to sustain the growth rate and productivity. For example, the Japan debt is over the 200 % of GDP but still it performing well and debt is not affecting its growth rate and productivity.

The US debt is majorily being held by the foreigner, thus it might be matter of worry for the government as government is likely to pay the higher interest rate. it would increase the fiscal burden on the government. Thus, after the Covid-19 pandemic, the government must reduce its expenditure level to control the debt level and reduce the debt to GDP ratio. thus, here growth might be adversely affected over the long run, apart from this, the government might be in difficult situation when it would come to paying off the debt .