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Consider a government's dynamic budget constraint in debt to GDP terms.
a) Analyse why policy-makers have been concerned about the stability of this equation, and what
policy rules have been implemented to address these concerns.
b) Analyse the terms of the Reinhart and Rogoff (2010) controversy on the debt to GDP ratio.
c) Assess two reasons why Reinhart and Rogoff's (2010) assumption to consider the government
budget constraint as conceptually analogous to that of a household might be misleading.
d) How do ratings agencies affect the equation and its stability?
e) This approach maintains that the government budget constraint is effectively comparable to
that of a household. What insight do we gain from such a comparison and what are its
limitations?

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Consider a government's dynamic budget constraint in debt to GDP terms.pdf

  • 1. Consider a government's dynamic budget constraint in debt to GDP terms. a) Analyse why policy-makers have been concerned about the stability of this equation, and what policy rules have been implemented to address these concerns. b) Analyse the terms of the Reinhart and Rogoff (2010) controversy on the debt to GDP ratio. c) Assess two reasons why Reinhart and Rogoff's (2010) assumption to consider the government budget constraint as conceptually analogous to that of a household might be misleading. d) How do ratings agencies affect the equation and its stability? e) This approach maintains that the government budget constraint is effectively comparable to that of a household. What insight do we gain from such a comparison and what are its limitations?