EBK MACROECONOMICS
4th Edition
ISBN: 8220103648165
Author: KRUGMAN
Publisher: MAC HIGHER
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Question
Chapter 13, Problem 11P
To determine
Concept Introduction:
Formula to calculate debt percent of real GDP,
Formula to calculate budget deficit percent of real GDP,
Expert Solution & Answer
Answer to Problem 11P
a. Government budget deficit remains constant.
| Year | Real GDP(billions $)  | Debt(billions $)  | Budget Deficit(billions $)  | Debt % of Real GDP(%)  | Budget Deficit% of Real GDP(%)  |
| 2016 | 1,000 | 300 | 30 | 30 | 3 |
| 2017 | 1,030 | 309 | 30 | 30 | 2.91 |
| 2018 | 1,061 | 318.3 | 30 | 30 | 2.82 |
| 2019 | 1,093 | 328 | 30 | 30 | 2.74 |
| 2020 | 1,126 | 337 | 30 | 30 | 2.66 |
| 2021 | 1,159 | 347.7 | 30 | 30 | 2.58 |
| `2022 | 1,194 | 358.2 | 30 | 30 | 2.51 |
| 2023 | 1,230 | 369 | 30 | 30 | 2.43 |
| 2024 | 1,267 | 380 | 30 | 30 | 2.36 |
| 2025 | 1,305 | 391.5 | 30 | 30 | 2.29 |
| 2026 | 1,344 | 403.2 | 30 | 30 | 2.23 |
b. Government budget deficit grows by 3%.
| Year | Real GDP(billions $)  | Debt(billions $)  | Budget Deficit(billions $)  | Debt % of Real GDP(%)  | Budget Deficit% of Real GDP(%)  |
| 2016 | 1,000 | 300 | 30 | 30 | 3 |
| 2017 | 1,030 | 309 | 30.9 | 30 | 3 |
| 2018 | 1,061 | 318.3 | 31.8 | 30 | 2.99 |
| 2019 | 1,093 | 328 | 32.7 | 30 | 2.99 |
| 2020 | 1,126 | 337 | 33.6 | 30 | 2.98 |
| 2021 | 1,159 | 347.7 | 34.6 | 30 | 2.98 |
| `2022 | 1,194 | 358.2 | 35.6 | 30 | 2.98 |
| 2023 | 1,230 | 369 | 36.6 | 30 | 2.97 |
| 2024 | 1,267 | 380 | 37.6 | 30 | 2.96 |
| 2025 | 1,305 | 391.5 | 38.7 | 30 | 2.96 |
| 2026 | 1,344 | 403.2 | 39.8 | 30 | 2.96 |
c. Government budget deficit grows by 20%.
| Year | Real GDP(billions $)  | Debt(billions $)  | Budget Deficit(billions $)  | Debt % of Real GDP(%)  | Budget Deficit% of Real GDP(%)  |
| 2014 | 1,000 | 300 | 30 | 30 | 3 |
| 2015 | 1,030 | 309 | 36 | 30 | 3.49 |
| 2016 | 1,061 | 318.3 | 43.2 | 30 | 4.07 |
| 2017 | 1,093 | 328 | 51.8 | 30 | 4.73 |
| 2018 | 1,126 | 337 | 62.2 | 30 | 5.52 |
| 2019 | 1,159 | 347.7 | 74.6 | 30 | 6.43 |
| 2020 | 1,194 | 358.2 | 89.6 | 30 | 7.50 |
| 2021 | 1,230 | 369 | 107.5 | 30 | 8.73 |
| 2022 | 1,267 | 380 | 128.9 | 30 | 10.17 |
| 2023 | 1,305 | 391.5 | 154.7 | 30 | 11.85 |
| 2024 | 1,344 | 403.2 | 185.7 | 30 | 13.81 |
d. Debt-GDP ratio.
Debt-GDP ratio remains same in every case.
Explanation of Solution
- In part a, the budget deficit is constant so the debt-GDP ratio is 0.3 and deficit to GDP ratio is 0.03.
- In part b, the budget deficit increases by 3% so the debt-GDP ratio is 0.3 and in part c. the budget deficit increases by 20% so the debt-GDP ratio is 0.3.
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