Refer to Table 4 in the chapter, which assumes the country continues to pay an interest rate of 8% on its debt. Suppose, instead, that the interest rate were 10%, while each year€™s nominal GDP and nominal debt remain as specified in the table. Enter new numbers for the last two columns in the table. Briefly, what impact does a higher interest rate have on (a) the burden of the debt? (b) the increase in the burden of the debt over time?

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(5) Debt Burden (1) (2) (4) (Interest Nominal Nominal (3) Debt Ratio Interest payments as % of GDP) Column (4) + Column (1) Debt GDP Payments (at 8% interest rate) 0.08 x Column (2) (growing at 10% per year) Column (2) + Column (1) (growing at 20% per year) Year I $10,000 billion $5,000 billion 50% $400 billion 4% 54.5% $480 billion Year 2 $I1,000 billion $6,000 billion 4.4% Year 3 $12,100 billion $7,200 billion 59.5% $576 billion 4.8% 65.0% $691.2 billion Year 4 $13,310 billion $8,640 billion 5.2%