2. Calculating the debt to GDP ratioSuppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017:• Gross domestic product (GDP) is equal to $150 billion.• The national debt is equal to $225 billion.• The government has a budget deficit of $9 billion.• The debt ceiling in Splurgium is set at $248 billion.The following calculations help you see how the ratio of debt to GDP changes from one year to the next.Complete the first row of the following table by computing the ratio of national debt to GDP.Suppose that nominal GDP remains at $150 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume theinterest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.GDPNational DebtYear(Billions of dollars)(Billions of dollars)Ratio of National Debt to GDP20171502252018150Now that the government's national debt has been growing for several years, investors have become worried that the government might default on itsdebt-that is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive aninterest rate of 20%.If the government runs a budget deficit of $10 billion in 2019, the national debt will increase by $billion.True or False: At the end of 2019, the government of Splurgium will exceed the legal limit on how much it can borrow.TrueO False

GDP is the standard proportion of the worth added made through the development of labor and products in a country during a specific period. All things considered, it additionally gauges the pay acquired from that production, or the aggregate sum spent on definite labor and products (less imports).Year 2017 :- Ratio of National Debt to GDP = 225/150 => 1.50 Year 2018 :- National Debt =225 + 9 =>234 billion. Ratio of National Debt to GDP =234/150 =>1.56 If the government runs a budget deficit of $10 billion in 2019 , the National Debt increases by =>10 billions. Total National Debt in 2019=>225+9+10=>244 Debt Ceiling =244 billion. Since National Debt (244) is less than Debt Ceiling (248) so there is NO exceed on legal limit on how much to borrow. False => At the end of 2019, the government of Spendia will exceed the legal limit on how much it can borrow.

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ss domestic product (GDP) is equal to $150 billion. national debt is equal to $225 billion. government has a budget deficit of $9 billion. debt ceiling in Splurgium is set at $248 billion. ing calculations help you see how the ratio of debt to GDP changes from one year to the next. the first row of the following table by computing the ratio of national debt to GDP.

ss domestic product (GDP) is equal to $150 billion. national debt is equal to $225 billion. government has a budget deficit of $9 billion. debt ceiling in Splurgium is set at $248 billion. ing calculations help you see how the ratio of debt to GDP changes from one year to the next. the first row of the following table by computing the ratio of national debt to GDP.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Now that the government's national debt has been growing for several years, investors have become worried that the government might default on its debt-that is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive an interest rate of 10%. If the government runs a budget defict of $10 billion in 2019, the national debt will increase by 5 True or False: At the end of 2019, the government of Debtenburg will exceed the legal limit on how much it can borrow. True O False billion.