Chapter 28, Problem 11P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It refers to gross money value or gross market value of all the finished goods and services produced by resident and non-resident people of a country that is within the borders of the country in an accounting year.

Explanation of Solution

Formula to calculate debt percent of real GDP:

Formula to calculate budget deficit percent of real GDP:

a. Government budget deficit remains constant.

Given:
Budget deficit is constant at $30 per year.

Year	Real GDP(billions $)	Debt(billions $)	Budget Deficit(billions $)	Debt % of Real GDP(%)	Budget Deficit% of Real GAP(%)
2014	1,000	300	30	30	3
2015	1,030	309	30	30	2.91
2016	1,061	318.3	30	30	2.82
2017	1,093	328	30	30	2.74
2018	1,126	337	30	30	2.66
2019	1,159	347.7	30	30	2.58
`2020	1,194	358.2	30	30	2.51
2021	1,230	369	30	30	2.43
2022	1,267	380	30	30	2.36
2023	1,305	391.5	30	30	2.29
2024	1,344	403.2	30	30	2.23

Conclusion:

Thus, the table is completed.

b. Government budget deficit grows by 3%.

Given:
Government budget deficit grows by 3% per year.

Year	Real GDP(billions $)	Debt(billions $)	Budget Deficit(billions $)	Debt % of Real GDP(%)	Budget Deficit% of Real GAP(%)
2014	1,000	300	30	30	3
2015	1,030	309	30.9	30	3
2016	1,061	318.3	31.8	30	2.99
2017	1,093	328	32.7	30	2.99
2018	1,126	337	33.6	30	2.98
2019	1,159	347.7	34.6	30	2.98
2020	1,194	358.2	35.6	30	2.98
2021	1,230	369	36.6	30	2.97
2022	1,267	380	37.6	30	2.96
2023	1,305	391.5	38.7	30	2.96
2024	1,344	403.2	39.8	30	2.96

Conclusion:

Thus, the debt-GDP ratio and ratio of the budget deficit is calculated.

c. Government budget deficit grows by 20%.

Given:

Government budget deficit grows by 20% per year.

Year	Real GDP(billions $)	Debt(billions $)	Budget Deficit(billions $)	Debt % of Real GDP(%)	Budget Deficit% of Real GAP(%)
2014	1,000	300	30	30	3
2015	1,030	309	36	30	3.49
2016	1,061	318.3	43.2	30	4.07
2017	1,093	328	51.8	30	4.73
2018	1,126	337	62.2	30	5.52
2019	1,159	347.7	74.6	30	6.43
2020	1,194	358.2	89.6	30	7.50
2021	1,230	369	107.5	30	8.73
2022	1,267	380	128.9	30	10.17
2023	1,305	391.5	154.7	30	11.85
2024	1,344	403.2	185.7	30	13.81

Conclusion:

Thus, the debt-GDP ratio and ratio of the budget deficit is calculated.

d. Debt-GDP ratio.

• In part a, the budget deficit is constant so the debt-GDP ratio is 0.3 and deficit to GDP ratio is 0.03.
• In part b, the budget deficit increases by 3% so the debt-GDP ratio is 0.3 and in part c. the budget deficit increases by 20% so the debt-GDP ratio is 0.3.

Conclusion:

Thus, debt-GDP ratio remains the same in every case.