Debt-to-GDP ratio
Debt-to-GDP ratio is a way to measure how much money a country owes compared to how much money it makes. It's kind of like how you might think about how much money you owe to your parents for buying you things, like toys or clothes.
Imagine you had a piggy bank where you saved all your money. Let's say you had saved $10, and your cousin came over and asked if he could borrow $5. You gave him the $5 and now you only have $5 left in your piggy bank. That's kind of like how a country can have debt.
Now let's imagine that you also started working by doing chores around the house and getting paid for it. You made $20 doing chores, so now you have a total of $25 in your piggy bank. This $20 that you made from working is like a country's GDP, which stands for Gross Domestic Product. It's how much money a country makes from all the things it produces and sells.
So, your debt-to-GDP ratio would be 5/20 or 0.25, which means you owe your cousin 0.25 times the money you make from working. In other words, you owe him a quarter of what you made from working.
Similarly, a country's debt-to-GDP ratio is the amount of debt it owes divided by its GDP. For example, if a country has a debt of $1 trillion and its GDP is $10 trillion, its debt-to-GDP ratio is 0.1, or 10%. This means the country owes one-tenth of what it makes from all the things it produces and sells.
A high debt-to-GDP ratio can be concerning because it means a country may have trouble paying off its debts. Just like how you might have trouble paying back your cousin if you owed him too much money compared to how much you make from working.
Imagine you had a piggy bank where you saved all your money. Let's say you had saved $10, and your cousin came over and asked if he could borrow $5. You gave him the $5 and now you only have $5 left in your piggy bank. That's kind of like how a country can have debt.
Now let's imagine that you also started working by doing chores around the house and getting paid for it. You made $20 doing chores, so now you have a total of $25 in your piggy bank. This $20 that you made from working is like a country's GDP, which stands for Gross Domestic Product. It's how much money a country makes from all the things it produces and sells.
So, your debt-to-GDP ratio would be 5/20 or 0.25, which means you owe your cousin 0.25 times the money you make from working. In other words, you owe him a quarter of what you made from working.
Similarly, a country's debt-to-GDP ratio is the amount of debt it owes divided by its GDP. For example, if a country has a debt of $1 trillion and its GDP is $10 trillion, its debt-to-GDP ratio is 0.1, or 10%. This means the country owes one-tenth of what it makes from all the things it produces and sells.
A high debt-to-GDP ratio can be concerning because it means a country may have trouble paying off its debts. Just like how you might have trouble paying back your cousin if you owed him too much money compared to how much you make from working.