Question: Guatemala government has an outstanding debt of $18.23 billion and its GDP is 30% higher than the debt. The nominal interest rate is 5%. The inflation rate is 2%.
a. What is the sustainable deficit ratio if the country is growing at 5%? How about when inflation goes to 2%?
b. What about if the country grows at 2%? How about when inflation goes to 7%?
c. Is Guatemala's debt sustainable if the government runs a balanced budget in both a and b.