Why is the relation between the growth rate of GDP and the r

Why is the relation between the growth rate of GDP and the real interest rate important for sustaining the government the debt-to-GDP ratio ?

Solution

Ans

This is become if gdp growth rate falls or real interest rate rise the relation between gdp and real interest rate will change and debt will become unsustainable. In other words revenue will fall relative to expenditure on debt and interest repayment, and/or expenditure will rise relative revenue for Govt. Ultimately it will result in unsustainable debt as happened in Greece recently