Try the following exercises to better understand how the national debt is related to the government’s budget deficit. If GDP increased by 6 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP

Try the following exercises to better understand how the national debt is related to the government’s budget deficit. If GDP increased by 6 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter3: Economic Decision Makers

Section: Chapter Questions

Problem 3.11P

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(The National Debt) Try the following exercises to better understand how the national debt is related to the government’s budget deficit. Assume that the gross national debt initially is equal to $3 trillion and the federal government then runs a deficit of $300 billion. What is the new level of gross national debt? If 100 percent of the deficit is financed by the sale of securities to federal agencies, what happens to the amount of debt held by the public? What happens to the level of gross debt? If GDP increased by 5 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?
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