Question 4: (i) Consider an economy where government consumption is 22% of GDP, government investment is 3% of GDP, government transfers to the private sector is 23% of GDP, taxes are 45 percent of GDP, and government net debt is 50% of GDP. The interest rate is 4%, inflation is 2% and there is no growth. Calculate (2.5 points each): A) the government use of goods and services as a share of GDP B) the primary deficit as a share of GDP C) the government deficit as a share of GDP D) the change in real government debt as a share of GDP. (ii) The interest rate is 4%, inflation is 2%, and real growth is 2%. In a particular year, nominal GDP is 100, net government debt is 50. The primary deficit is 4% of GDP (2.0 points each). A) What is the value of nominal GDP next year? B) What is the government deficit? C) What is the value of net government debt next year? D) What is the debt ratio this year and next year? E) Check that your result is consistent with the formula for the change in the debt ratio.

Question 4: (i) Consider an economy where government consumption is 22% of GDP, government investment is 3% of GDP, government transfers to the private sector is 23% of GDP, taxes are 45 percent of GDP, and government net debt is 50% of GDP. The interest rate is 4%, inflation is 2% and there is no growth. Calculate (2.5 points each): A) the government use of goods and services as a share of GDP B) the primary deficit as a share of GDP C) the government deficit as a share of GDP D) the change in real government debt as a share of GDP. (ii) The interest rate is 4%, inflation is 2%, and real growth is 2%. In a particular year, nominal GDP is 100, net government debt is 50. The primary deficit is 4% of GDP (2.0 points each). A) What is the value of nominal GDP next year? B) What is the government deficit? C) What is the value of net government debt next year? D) What is the debt ratio this year and next year? E) Check that your result is consistent with the formula for the change in the debt ratio.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter13: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 18SQ

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