First, consider that, in general, the nominal value of the debt evolves:

Dt+1 = [- (T - TR - G) + % 100 Dt] + Dt ;

i.e., the debt in the next period equals the current-period debt, Dt, plus the current-period deficit, [- (Tt - TRt - Gt) + % 100 Dt], where i% is the percentage interest rate that must be paid on Dt.

To examine the plausibility of the claim, suppose the "primary deficit" (the part of the deficit that excludes interest payments) is 1% of the level of the existing debt, so that:

- (Tt - TRt - Gt) = (0.01)Dt and Dt > 0.

Real GDP is not growing, but there is 2% inflation rate so that nominal GDP is growing.

Finally use the interest rate 0.69% interest rate in answering this question.

Does the economy satisfy the condition required for a stable Debt-to-GDP ratio?

Show your calculations.

Hint: %D = +1 100% for all t, in this problem.