b) Given that nothing else is borrowed in the near future, the length of time it will take agovernment to completely eliminate its stock of debt will be entirely dependent on howmuch more annual repayments exceed the annual interest expenses. The interestexpense portion of the debt is a function of the present stock of debt, y, and is given byi (y) = y - yThe amount of money that the government repays to reduce its debt stock is assumed tobe a fraction, a, of the present stock of debt. Repayment is done at the end of eachfinancial year.(i) Solve for the present stock of debt, y, as a function of t.(ii) What will happen to government debt as t → 00? Justify your response.

Government debt Government Debt is a concept that has been for a long time and will continue to…

b) Given that nothing else is borrowed in the near future, the length of time it will take a government to completely eliminate its stock of debt will be entirely dependent on how much more annual repayments exceed the annual interest expenses. The interest expense portion of the debt is a function of the present stock of debt, y, and is given by i (y) = y - y

b) Given that nothing else is borrowed in the near future, the length of time it will take a government to completely eliminate its stock of debt will be entirely dependent on how much more annual repayments exceed the annual interest expenses. The interest expense portion of the debt is a function of the present stock of debt, y, and is given by i (y) = y - y

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 7E

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