I want to ask a question about how economic growth, inflation, interest rates is linked to fiscal deficit.
I was reading a book on introductory economics and the following passage came up:
If a country is growing at around 2.5% per year, and there is 2% inflation and low interest rates, then a fiscal deficit of around 3% per year will probably maintain a stable level of national debt (the sum total of all outstanding government borrowing) as a percentage of GDP.
What I cannot understand is if there is a mathematical link or intuition that justifies this statement.
I understand that the 2.5% p/a refers to the economic growth, which has direct links to GDP. Inflation of 2% is a familiar target in macroeconomic objects to prevent excessive inflation but also avoid deflation. Low interest rates also promote Investment $I$, which in turn stimulates growth in GDP.
However, I do not understand where the figure of 3% national debt as a percentage of GDP is obtained.
Where is the 3% figure for national debt as a percentage of GDP obtained?
The extract is also provided in image form below: