Take a country that has the debt-to-GDP ratio equal to bo. Suppose the real interest rate on government bonds is larger than the rateof growth of real GDP. Suppose further that the government is running a primary deficit, so that the debt ratio is bound to increase.Now suppose the government takes measures to stabilize debt and starts running a primary surplus large enough to keep thedebt ratio constant. Show on the debt dynamics graph how this change in fiscal policy makes the government able to maintain debtat bo-a)b)Now assume that the sharp fiscal contraction leads to a recession, decreasing the growth rate of real GDP. Using the debtdynamics equation and assuming that the growth rates and primary surpluses are negatively correlated, explain the impact of a fiscalcontraction on the subsequent stabilization of the debt-to-GDP ratio.

Gross Domestic Product (GDP) is defined as the monetary value of all the final goods and services…

Take a country that has the debt-to-GDP ratio equal to bo. Suppose the real interest rate on government bonds is larger than the rate of growth of real GDP. Suppose further that the government is running a primary deficit, so that the debt ratio is bound to increase.

Take a country that has the debt-to-GDP ratio equal to bo. Suppose the real interest rate on government bonds is larger than the rate of growth of real GDP. Suppose further that the government is running a primary deficit, so that the debt ratio is bound to increase.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that “we should tax the rich.” The politician makes a simple arithmetic calculation in which he applies a higher tax rate to the total income reported by “the rich” in a previous year. He says that the government could thereby solve the deficit problem by taxing “the rich.” What is the major fallacy in such a claim?
Calculate interest payments if fiscal deficit is $77 million and primary deficit is $50 million
The imaginary country of Acordia lists the following projected revenues and outlays for 2020: $30 million in personal income tax, $20 million in corporate income tax, $7 million in indirect taxes, $2 million in investment income, $35 million in transfer payments, $14 million in government expenditures, and $4 million in debt interest. What is the projected budget surplus (or deficit) for 2021? Calculate the amount and indicate whether it is a surplus or deficit.
If the mps= 0.2, and the price level is constant, what should be the change in the budget deficit so that GDP rises by $500?
In year one government taxes are 590,000 and government spending is 600,000 in year two government taxes are 590,000 and government spending is 590,000 in year three government taxes are 630,000 and government spending is 600,000. What is the government deficit for year two and provide the size of the government debt or surplus at the end of all three year.
A government starts with a national debt of $3.5 billion. In year 1, the government runs a budget deficit of $400 million. In year 2, the government runs a budget deficit of $1 billion. In year 3, the government runs a budget surplus of $200 million. What is the government's national debt at the end of the third year?
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 < Prev 5 of 5 Next W tv N FEB 877 9.
Suppose that in 2011, Mexico's total government outlays were 657 billion pesos and total government revenue was 550 billion pesos. Calculate Mexico's budget surplus or deficit. Be sure to include a negative sign if appropriate. billion pesos Select the answer that best describes the impact that the surplus or deficit you calculated will have on Mexico's debt. Mexico's debt will rise by an amount equal to the size of the deficit O Mexico's debt will not change. OMexico's debt will fall by an amount equal to the size of the surplus
Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $20 billion in year 3, and a budget deficit of $2 billion in year 4. Instructions: In part a, enter your answer as a whole number. For the absolute size of the public debt, enter your answer as a positive number. In part b, round your answer to 2 decimal places. a. What is the absolute size of its public debt in year 4? billion b. If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4? percent
Calculate the value of revenue deficit with given information as follows:- Revenue expenditure = $6500 million Revenue receipts = $4000 million
Is rising national debt is harmful to the U.S economy?
"If I am elected I will reduce the deficit" -every politician in history Which of the following best describes the statement above and the difference between the debt vs deficit? Federal government spending will be O more than tax revenue and debt will decrease. Federal government spending will be less than tax revenue and debt will increase. Federal government spending will continue to be greater than tax revenue, and debt will increase. Federal government spending will be less than tax revenue and debt will decrease.