ECONOMICS W/CONNECTPLUS PKG>IC<
20th Edition
ISBN: 9781259685897
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 31, Problem 6P
To determine
Fourth year real GDP .
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Question 16
The country of Opulencia loves to live large, but has a major debt problem. It has a national debt of
$800 billion, $400 billion in intergovernmental borrowing, $160 billion in bonds held by domestic
citizens, and $240 billion in bonds held by foreign citizens. Opulencia's public debt is equal to:
O $400 billion
O $640 billion
O $960 billion
O $1,200 billion
Suppose that a family's income is exactly the same as the poverty threshold.
This family's income deficit would be
and their ratio of income to poverty would be
O 0; 1
0 ; 0
1;0
O 1;1
Consider a family of four in 2008, whose poverty threshold is $22,024. If this family's total income was $12394, what
would their income deficit be?
income deficit: $
Thank you so much for your time!!
Public debt is the sum of deficits and surpluses (negative deficits) over time. Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 1, a budget deficit of $20 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4.
Part 1: What is the absolute size of its public debt in year 4?
Part 2: If the real GDP in year 4 is $104 billion, what is this country’s public debt as a percentage of real GDP in year 4?
Chapter 31 Solutions
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- If the government deficit/GDP ratio remains constant at 6% a year, the real GDP growth rate is 4% a year and the real interest rate is 1%, the public debt/GDP ratio will converge to the equilibrium level at O 210% O 305% O 208% O 368%arrow_forwardNow suppose that the gross national debt initially is equal to $2.5 trillion and the federal government then runs a deficit of $100 billion. What is the new level of gross national debt? If 100 percent of this deficit is financed by the sale of securities to the public, what happens to the level of debt held by the public? What happens to the level of gross debt? 3. If GDP increases by 6 percent in the same year as the deficit is run, what happens to the gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?arrow_forwardSuppose that the federal government had a budget deficit of $60 billion in year 1 and $70 billion in year 2, but that it experiences budget surpluses of $50 billion in year 3 and $10 billion in year 4. Also assume that the government uses any budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have decreased by $60 billion. decreased by $57.5 billion. increased by $60 billion. increased by $190 billion.arrow_forward
- If the real interest rate on government bonds is three percent, real GDP grows at one percent, the current debt-to-GDP ratio is forty percent and the primary budget deficit as a percentage of GDP is two percent, then the debt-to-GDP ratio will rise in a year by. percentage points. O a. 0.28 O b. 0.82 O c. 2.8 O d. 8.2 O e. 82arrow_forwardSuppose that the existing stock of debt in Outland is $500500 billion, and the government expects to collect $184184 billion as net tax revenues. If the interest rate in this economy is 11 percent and the government wants to decrease its existing stock of debt by $4040 billion this year, then what should the government run this year?arrow_forward13. Which fiscal policy would make a budget surplus larger or a budget deficit smaller? O lower taxes O increase in government purchases of goods and services O lower government transfers O higher interest ratesarrow_forward
- 3. Suppose an economy is represented by the following equations. Consumption function C= 200 + 0.8Yd Planned investment I= 400 Government spending G= 600 Exports EX= 200 Imports IM = 0.1Yd Autonomous Taxes T= 500 Marginal Tax Rate t=0.2 Planned aggregate expenditure AE = C+I+G+ (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain why fiscal policy becomes less effective in an open economyarrow_forward39 2 points 01:12:10 · eBook Suppose the federal government had budget deficits of $40 billion in year 1 and $100 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have Multiple Choice O O decreased by $70 billion. Increased by $140 billion. decreased by $70 billion. increased by $70 billion.arrow_forwardSuppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4. What is the absolute size of its public debt in year 4? If its real GDP in year 4 is $104 billion, what is this country’s public debt as a percentage of real GDP in year 4?arrow_forward
- If a government runs a budget deficit of 10 billion dollars each year for ten years, then a surplus of 1 billion for five years, and then a balanced budget for another ten years, what is the government debt?arrow_forwardAssume 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.arrow_forwardExplain 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.arrow_forward
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