9-Suppose that the U.S. net foreign debt is 25 percent of U.S. GDP and that fore
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9-Suppose that the U.S. net foreign debt is 25 percent of U.S. GDP and that foreign as- ?sets and liabilities alike pay an interest rate of 5 percent per year. What would be the drain on U.S. GDP (as a percentage) from paying interest on the net foreign debt? Do you think this is a large number? What if the net foreign debt were 100 percent of GDP? At what point do you think a country
Suppose that the U.S. net foreign debt is 25 percent of U.S. GDP and that foreign as- ?sets and liabilities alike pay an interest rate of 5 percent per year. What would be the drain on U.S. GDP (as a percentage) from paying interest on the net foreign debt? Do you think this is a large number? What if the net foreign debt were 100 percent of GDP? At what point do you think a country's government should become worried about the size of its foreign debt?Explanation / Answer
0.25*0.05=1.25%
if it were 100% just multiply by 4 so 5%.
The worry is when the foreign debt is so high it is unrealistic they could turn a capital surplus soon to balance it out. There's no specific number to use, especially if your country is mostly in one commodity like oil. I would say 25% is definitely above my limit though.
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