Question

a) Plot Canada’s national debt to GDP ratio from 1980 to the 2017. What pattern has the debt to GDP ratio followed over time? What is its behavior over the recent period 2008-2017?

b) Should the government target the annual deficit/surplus (e.g., balanced budget) or the debt to GDP ratio?

c) Why might it make sense for a government to finance roads and other investments in public infrastructure through borrowing rather than through taxing today's taxpayers?

Answer 1

a. The pattern of the Canada's debt to GDP ratio from 1980 to 2017 is following an upward trend. Thus, the debt to GDP ratio of the government is increasing. The recent graph of the debt to GDP ratio also shows an upward trend as the ratio is increasing over the years.

b. Government should target in reducing debt to GDP ratio as high debt ratio increases dependence on foreign nations and makes the currency volatile. Thus, debt GDP ratio of the government should be reduced.

c. Because investment in infrastructure leads to income in future for the government as it increases overall national output of the country.Thus, debt taken by the government for this purpose can easily be paid off without default if invested in infrastructural development of the nation.