2. Calculating the debt to GDP ratioSuppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017:• Gross domestic product (GDP) is equal to $150 billion.• The national debt is equal to $225 billion.• The government has a budget deficit of $9 billion.• The debt ceiling in Splurgium is set at $248 billion.The following calculations help you see how the ratio of debt to GDP changes from one year to the next.Complete the first row of the following table by computing the ratio of national debt to GDP.Suppose that nominal GDP remains at $150 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume theinterest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.GDPNational DebtYear(Billions of dollars)(Billions of dollars)Ratio of National Debt to GDP20171502252018150Now that the government's national debt has been growing for several years, investors have become worried that the government might default on itsdebt-that is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive aninterest rate of 20%.If the government runs a budget deficit of $10 billion in 2019, the national debt will increase by $billion.True or False: At the end of 2019, the government of Splurgium will exceed the legal limit on how much it can borrow.TrueO False

GDP is the standard proportion of the worth added made through the development of labor and products…

ss domestic product (GDP) is equal to $150 billion. national debt is equal to $225 billion. government has a budget deficit of $9 billion. debt ceiling in Splurgium is set at $248 billion. ing calculations help you see how the ratio of debt to GDP changes from one year to the next. the first row of the following table by computing the ratio of national debt to GDP.

ss domestic product (GDP) is equal to $150 billion. national debt is equal to $225 billion. government has a budget deficit of $9 billion. debt ceiling in Splurgium is set at $248 billion. ing calculations help you see how the ratio of debt to GDP changes from one year to the next. the first row of the following table by computing the ratio of national debt to GDP.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter12: Federal Budgets And Public Policy

Section: Chapter Questions

Problem 3.8P

See similar textbooks

Similar questions

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?
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not.
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
Have the spending and taxes of the U.S. federal government generally had an upward or a downward trend in the last few decades?
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.
Have spending and taxes by state and local governments In the United States had a generally upward or downward trend in the last few decades?
What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?
Explain how cuts in funding for programs such as Head Start might affect the development of human capital in the United States.