3. Interest on debt Aa Aa Suppose that the debt to GDP ratio in a hypothetical country reaches 200%. For many years, investors had been willing to lend to the government at very low interest rates. But now, investors become worried that the government might default on its debt-that is, might refuse to pay the investors back. As a result, the investors are now willing to lend to the government only if they receive a high interest rate of 20%. (Several years before Argentina defaulted on its debt, investors demanded interest rates on its debt of more than 20% per year, so 20% is not an unrealistic number.) Suppose that debt is equal to 180 trillion ducats and GDP is equal to 90 trillion ducats. If interest payments are equal to the interest accrued in a given year, how much would the government's interest payments on its debt be as a percentage of GDP? 40% 4% 20% 12% 2%

3. Interest on debt Aa Aa Suppose that the debt to GDP ratio in a hypothetical country reaches 200%. For many years, investors had been willing to lend to the government at very low interest rates. But now, investors become worried that the government might default on its debt-that is, might refuse to pay the investors back. As a result, the investors are now willing to lend to the government only if they receive a high interest rate of 20%. (Several years before Argentina defaulted on its debt, investors demanded interest rates on its debt of more than 20% per year, so 20% is not an unrealistic number.) Suppose that debt is equal to 180 trillion ducats and GDP is equal to 90 trillion ducats. If interest payments are equal to the interest accrued in a given year, how much would the government's interest payments on its debt be as a percentage of GDP? 40% 4% 20% 12% 2%

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 6PA

See similar textbooks

Similar questions

Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
What are some fiscal policies for improving a societys human capital?
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
Suppose that gifts were taxed at a rate of 10 for amounts up to 100,000 and 20 for anything over that amount. Would this tax be regressive or progressive?
Explain how cuts in funding for programs such as Head Start might affect the development of human capital in the United States.
What would happen if expansionary fiscal policy was implemented in a recession but, due to lag, did not actually take effect until after the economy was back to potential GDP?
According to Table 19.7, how often have recessions occurred since the end of World War II (1945)?