Macroeconomics
4th Edition
ISBN: 9781464110375
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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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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Tasks
Exercise 1
Assess the following functions:
1. f(x)= x2+6x+2
2.f '(x)=10x-2x2+5
a. Find the stationary points. (5 marks)
b. Determine whether the stationary point is a maximum or minimum. (5 marks)
c. Draw the corresponding curves (5 marks)
Problem 2:
The sales data over the last 10 years for the Acme Hardware Store are as follows:
2003
$230,000
2008
$526,000
2004
276,000
2009
605,000
2005
328,000
2010
690,000
2006
388,000
2011
779,000
2007
453,000
2012
873,000
1. Calculate the compound growth rate for the period of 2003 to 2012.
2. Based on your answer to part a, forecast sales for both 2013 and 2014.
3. Now calculate the compound growth rate for the period of 2007 to 2012.
1. Based on your answer to part e, forecast sales for both 2013 and 2014.
5. What is the major reason for the differences in your answers to parts b and d? If you were to
make your own projections, what would you forecast? (Drawing a graph is very helpful.)
Exercise 4A firm has the following average cost: AC = 200 + 2Q – 36
Q
Find the stationary point and determine if it is a maximum or a minimum.b. Find the marginal cost function.
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