Chapter 30, Problem 7MCQ

To determine

The correct tool to asses the ability of a government to pay its debt.

Explanation of Solution

The measure used to compare a nation's public debt to its gross domestic product is called the debt-to-GDP ratio (GDP). The debt-to-GDP ratio accurately predicts a nation's capacity to repay its obligations by contrasting what it owes with what it generates. This ratio, which is sometimes represented as a percentage, can alternatively be understood as the number of years required to retire debt if GDP were totally devoted to debt repayment.

Thus from the above we can conclude that the correct option is A.