In the context of public debt, the 'Domar Condition' for debt sustainability relates to:
A. The relationship between the interest rate, growth rate and primary balance
B. Only the level of absolute debt
C. Only external debt
D. Only the maturity structure of debt
Answer: Option A
Solution (By JKSSB Mock Tests)
The Domar condition indicates that the debt-to-GDP ratio will stabilise or decline if the primary surplus is sufficient relative to the difference between the interest rate and the growth rate of GDP.
Explanation:
Under a pure flexible (floating) exchange rate system, the value of the currency is determined by the interaction of demand and supply in the foreign exchange market.
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