Answer to Question #89290 in Macroeconomics for Charlie

Question

Is there an apparent relationship between low savings ratios and the ratio of foreign debt
to GDP? Explain.

Answer 1

There is an apparent relationship between savings ratios and the ratio of foreign debt-to-GDP. The debt-to-GDP ratio indicates the country's ability to pay back its debts. In the practice it shows, how many years it is needed for the government to pay back debt if GDP is dedicated entirely to debt repayment. Thus, this ratio indicates the part of national income, which is dedicated for paying foreign debts, also we can estimate the rest of GDP, which goes to for consuming and saving. It is obviously, that high debt-to-GDP ratio will cause low savings ratios. Generally, a country have to borrow money for current consuming in insufficiency or the lack of its own funds. So the higher foreign debts mean low savings.