By 1985, World War II debt had effectively been "paid off," with debt to GDP ratio returning to pre-war levels. But between 1945 and 1985 the federal government only ran small budget surpluses in six years. In fact, since 1950, federal debt (in absolute terms) increased every year.

1. Use the dynamic equation for government debt to explain how the US was able to reduce the debt to GDP ratio between 1945 and 1985 without running sustained budget surpluses.