Suppose that a country has no public debt in year 1 but experiences a budget deficit...

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Suppose that a country has no public debt in year 1 but experiences a budget deficit of $30 billion in year 2, a budget defic

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Answer 1

Answer #1

(a)

Public debt, year 5 ($ billion) = Public debt, year 1 + Budget deficit, year 2 + Budget deficit, year 3 - Budget surplus, year 4 + Budget deficit, year 5

= 0 + 30 + 20 - 10 + 2

= 42

(b)

Public debt-GDP ratio = Public debt in year 5 / Real GDP in year 5 = $42 billion / $104 billion = 0.4038 = 40.38%

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Answer 2

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