Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income.
For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of ?% per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows FASTER OR SLOWER? than the government debt, the level of debt can continue to increase without collapsing the economy. In this case, the nominal government debt can rise by ? % each year without increasing the debt-to-income ratio.