Unlike households, governments are often able to sustain large debts. For example, as of March 31, 2017, the Canadian government's gross debt was $716.3 billion, about 35.4% of GDP. The government paid an average interest rate of 3.4% on its debt. However, running budget deficits becomes hard when very large debts are outstanding.

a. Calculate the dollar cost of the annual interest on the government's total debt assuming the interest rate and debt figures cited above.

b. If the government operates on a balanced budget before interest payments are taken into account, at what rate must GDP grow in order for the debt-GDP ratio to remain unchanged??

c. Calculate the total increase in national debt if the government incurs a deficit of $28.5 billion in the fiscal year of 2017-2018.

d. At what rate would GDP have to grow in order for the debt-GDP ratio to remain unchanged when the budget deficit in 2017-2018 is $28.5 billion?

e. Why is the debt-GDP ratio the preferred measure of a country's debt rather than the dollar value of the debt? Why is it important for a government to keep this number under control?