Unlike households, governments are often able to sustain large debts. For example, in 2013, the U.S. government's total debt reached $17.3 trillion, approximately equal to 101.6% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 2.0%. However, running budget deficits becomes hard when very large debts are outstanding.
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?
2.0%
1.0%
4.0%
3.0%