Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $5 trillion while raising only $4 trillion worthof taxes.Instructions: Enter your responses rounded to one decimal place.a. What will be the government's deficit?241000 billionb. If the government finances the deficit by issuing bonds, what amount of bonds will it issue?$41000 billionC. At a 3 percent rate of interest, how much interest will the government pay each year?$430 billiond. Add the interest payment to the government's $5 trillion expenditures for the next year, and assume that tax revenues remain at$4 trillion. In the second year, compute the() Deficit: $billion(ii) Amount of new debt (bonds) issued to finance the deficit in the second year: $billion(iii) Total debt at the end of the second year: $billion(iv) Debt service requirement: $billion< Prev5 of 5NextWtv NFEB8779.

a) The revenue and expenditure both are short-term expenses used within a current period. They both…

Answered: Suppose a government has no debt and a…

Suppose a government has no debt and a of taxes. Instructions: Enter your responses rounde a. What will be the government's deficit?

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

Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $5 trillion while raising only $4 trillion worth
of taxes.
Instructions: Enter your responses rounded to one decimal place.
a. What will be the government's deficit?
24
1000 billion
b. If the government finances the deficit by issuing bonds, what amount of bonds will it issue?
$4
1000 billion
C. At a 3 percent rate of interest, how much interest will the government pay each year?
$4
30 billion
d. Add the interest payment to the government's $5 trillion expenditures for the next year, and assume that tax revenues remain at
$4 trillion. In the second year, compute the
() Deficit: $
billion
(ii) Amount of new debt (bonds) issued to finance the deficit in the second year: $
billion
(iii) Total debt at the end of the second year: $
billion
(iv) Debt service requirement: $
billion
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