From the course: Economic Tips for Everyone

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Debt to GDP

Debt to GDP

From the course: Economic Tips for Everyone

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Debt to GDP

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- There are two different ways people talk about a country's debt. First is the actual amount of money that a country owes. Second, there's the debt-to-GDP ratio. It's the relationship between the money owed and the average annual income of that country, which is also known as gross domestic product, or GDP. You might have a country that owes a trillion dollars, which is a lot. And if that country's Guatemala, that's a big problem, because it represents more than 12 times the country's GDP. In other words, its debt-to-GDP ratio would be over 1200%. But if the country that owes $1 trillion is the United States, that's less than 5% of its GDP. To a certain degree, the relationship between a country's debt and its income is much like that of an individual. If an individual owes $500,000 but has $100,000 a year in income, that's much less a problem than if the person has $500,000 in debt and only $25,000 a year in income.…

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