Answered: In 2016, the policy makers of the of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

In 2016, the policy makers of the of Eastlandia projected the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenario for growth in the government´s deficit. Real GDP is currently $1,000 billion per year and is expected to grow by 3% per year, the public debt is $300 billion at the beginning of the year, and the deficit is $30 billion in 2016.
Complete the accompanying table to show the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy if the government´s budget deficit remains constant at $30 billion over the next 10 years. (Remember that the government´s debt will grow by the previous year´s deficit.)

Budget deficit
(billions of
dollars)
Debt
(percent of
real GDP)
Budget deficit
(percent of
real GDP)
Real GDP
Debt
(billions of
(billions
of dollars)
Year
dollars)
2016
$1,000
$300
$30
2017
1,030
2018
1,061
2019
1,093
2020
1,126
2021
1,159
2022
1,194
2023
1,230
2024
1,267
2025
1,305
2026
1,344

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