Why, when we are referring to debt, do we like to compare it to something else? What are the benefits, as just one example, of assessing U.S. debt as a debt to GDP ratio?
1. Billions of dollars in debt in a large country with a large economy, like the United States, means much less than billions of dollars in debt in a smaller country like Switzerland. Therefore to fully understand the severity of a country’s debt we like to compare it to another factor—like GDP—to put the debt into perspective. Dividing the debt by GDP gives us a ratio that can help better explain US debt and help us accurately compare what our debt ratio is to other countries.