Fiscal Sustainability
Let us assume that your country faces the situation of the real cost of debt (r) being higher than real GDP growth (g): r>g. In such a situation, what will happen with the debt ratio?
Recall the DDT “Input-Data” worksheet: which of the following variables used to populate the template does not require projections?
[] They are equal to the primary deficit plus debt amortization.
[] They are equal to the overall deficit plus debt amortization.
[] They are equal to the primary deficit plus interest payments.
[] They are equal to the overall deficit plus the debt service.
They are equal to the overall deficit plus debt amortization.
Which of the following statements is correct?
[] The debt/GDP ratio will continue to increase if a country runs permanent primary deficits.
[] As long as the primary fiscal balance is positive, the debt/GDP ratio will decrease.
[] The debt/GDP ratio can decrease in a country that runs permanent primary deficits as long as the growth rate is sufficiently high relative to the interest rate.
[] Solvency and the “no Ponzi Game condition” are always satisfied.
The debt/GDP ratio can decrease in a country that runs permanent primary deficits as long as the growth rate is sufficiently high relative to the interest rate.
The real effective interest rate on the public debt of a country that does not have debt denominated in foreign currency
[] Can be approximated as the difference between the effective nominal interest rate and the domestic inflation rate.
[] Cannot be calculated without knowing the foreign inflation rate.
[] Cannot be calculated without knowing the depreciation of the nominal exchange rate.
[] None of the above.
Can be approximated as the difference between the effective nominal interest rate and the domestic inflation rate.
[] Only explicit contingent liabilities imply quasi-fiscal costs.
[] Only explicit contingent liabilities can arise from public-private partnerships.
[] Only explicit contingent liabilities can arise from off-balance-sheet activities.
[] Only explicit contingent liabilities constitute legal obligations.
Only explicit contingent liabilities constitute legal obligations.
What is the main product of the Low Income Country Debt Sustainability Framework (LIC DSF)?
[] A stress map indicating the risks associated with the level and profile of debt, and financing needs.
[] The probability of default.
[] Type 1 and type 2 errors for predicting debt crises.
[] A rating of the risk of external debt distress.
A rating of the risk of external debt distress.
Of the following statements regarding alternative scenarios and stress testing in the DDT, which one is NOT correct?
[] Alternative scenarios can help assess risks.
[] Standardized stress tests introduce shocks in key variables for the projection of public debt.
[] Fan charts provide a probabilistic view of the uncertainty surrounding the baseline scenario considering contemporaneous correlations of key variables.
[] The constant primary balance scenario sets the primary balance at its 10-year historical average.
The constant primary balance scenario sets the primary balance at its 10-year historical average.
A country’s initial public debt/GDP ratio is 60 percent. Assume that its annual real interest rate equals 6 percent; real GDP growth rate equals 5.0 percent; and the primary fiscal balance equals – 4.0 percent of GDP. What is the ratio of public debt to GDP in period t? (Round your answer)
Which set of conditions is most unfavorable for a decline in the debt-to-GDP ratio?
[] Real growth higher than real interest rates; negative primary balances.
[] Real growth lower than real interest rates; negative primary balances.
[] Real growth higher than real interest rates; positive primary balances.
[] Real growth lower than real interest rates; positive primary balances.
[] A defined benefit plan defines contributions, a defined contribution plan does not.
[] A defined benefit plan provides an annuity upon retirement, while a defined contribution plan provides a lump sum.
[] A defined benefit is often a “pay-as-you-go” plan, while a defined contribution plan is “fully funded.”
[] In a defined contribution plan, contributions and benefits are not related.
A defined benefit is often a “pay-as-you-go” plan, while a defined contribution plan is “fully funded.”
-5%
-3%
3%
5%
-5%
Which of the following statements about the Public Debt Dynamics Tool (DDT) tool is correct?
[] The DDT produces a rating indicating the risks to the sustainability of public debt.
[] The DDT projects the government’s debt amortizations.
[] The DDT projects public debt without projecting the government’s debt amortizations.
[] The DDT produces a rating indicating the risk of public debt distress.
The DDT projects public debt without projecting the government’s debt amortizations.
How does the “Baumol effect” explain the increase in health costs?
[] Technological improvements expand the scope of what is medically possible with increasing income.
[] With the development of countries, social expenses increase.
[] Productivity growth in other sectors of the economy is high compared to that of the health sector.
[] Public policies to expand medical coverage drive up health costs.
Productivity growth in other sectors of the economy is high compared to that of the health sector.