Question

10. Budget balances and the national debt The following table lists federal expenditures, revenues, and GDP for a hypothetical economy during several years. Year Expenditures (Billions of dollars) 1,653 GDP (Billions of dollars) 8,747 1998 2000 Revenues (Billions of dollars) 1,722 2,025 1,853 1,880 2,407 1,789 2002 2,011 9,817 10,470 11,686 13,178 2004 2,293 2,655 2006 Plot the data for revenues and expenditures as a percentage of GDP on the following graph, rounded to the nearest percent. Use the purple points (diamond symbol) for expenditures and the green points (triangle symbol) for revenues. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Answer 1

(1)

Revenue as % of GDP = (Revenue / GDP) x 100%

Expenditure as % of GDP = (Expenditure / GDP) x 100%

Data table:

Year	Revenue	Expenditure	GDP	Revenue/GDP	Expenditure/GDP
1998	1,722	1,653	8,747	20%	19%
2000	2,025	1,789	9,817	21%	18%
2002	1,853	2,011	10,470	18%	19%
2004	1,880	2,293	11,686	16%	20%
2006	2,407	2,655	13,178	18%	20%

Graph:

Expenditures Revenues EXPENDITURES AND REVENUES (Percent of GDP) 1996 1998 2000 2004 2006 2002 YEAR

(2) Budget was in deficit when Revenue < Expenditure, in years 2002, 2004 and 2006.

(3) In 2000, national debt decreased by $236 Billion by 242.03%.

National debt in year N = National debt in year (N - 1) + (Expenditure - Revenue)_{year N}

In 1998, National debt = 1,653 - 1,722 = - 69

In 2000, National debt = - 69 + (1,789 - 2,025) = - 305

Decrease in national debt = - 69 - (- 305) = - 69 + 305 = 236

% Decrease in national debt = (236 / 69) - 1 = 3.4203 - 1 = 2.4203 = 242.03%.