MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 17, Problem 1PA
To determine
The cyclically adjusted budget.
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Students have asked these similar questions
The following describes some key variables regarding public debt in the UK. Debt to output is 95%, the growth rate of output is 1.2%, and the interest rate on debt is 1.5%.
a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money?
b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.8% per year?
c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant?
d) Explain briefly what the concept of "cyclically adjusted budget deficit" is and why is it relevant?
Suppose you are the president of a country whose
government debt-to-GDP ratio is exploding, and you
want to stabilize this ratio. One of your economic
advisers (not a graduate of UPSE) tells you to "monetize
debt." According to your adviser, this will save the
interest payment on debt, since the government will pay
zero percent on the monetary base that will be created
from the rise in money supply. You should fire your
adviser, because:
this is equivalent to defaulting on the
government debt which only postpones the
repayment of debt to a later period.
O b. the adviser confused seigniorage with inflation
tax which is why his recommended policy
would fail.
O c.
O d.
GDP will fall, too.
while this might help to stabilize the debt-to-
GDP ratio, but it will result in exploding
inflation.
20 Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry about
trade with other countries.
Total spending for the federal government of Lilliput for the last fiscal year was $24.19 billion. The country collected $22.9
billion in taxes during this same fiscal year. Assume government transfers were zero.
Based on this information, what is Lilliput's budget balance?
Enter your answer to two decimal places.
budget balance: $
In the last fiscal year, Lilliput was running
a budget surplus
a budget deficit
a balanced budget
billion
Chapter 17 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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