Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes. a) What will be the government's deficit? b) If the government finances the deficit by issuing bonds, what amount of bonds will it issue? c) At a 10 percent rate of interest, how much interest will the government pay each year?
Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes. a) What will be the government's deficit? b) If the government finances the deficit by issuing bonds, what amount of bonds will it issue? c) At a 10 percent rate of interest, how much interest will the government pay each year?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter30: Government Budgets And Fiscal Policy
Section: Chapter Questions
Problem 51P: A government starts off with a total debt of $3.5 billion. In year one, the government runs a...
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Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes.
a) What will be the government's deficit?
b) If the government finances the deficit by issuing bonds, what amount of bonds will it
issue?
c) At a 10 percent rate of interest, how much interest will the government pay each
year?
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