Suppose the existing stock of government debt is $600 billion. The interest rate is 10%. Government...
Suppose the existing stock of government debt is $600 billion. The interest rate is 10%. Government purchases are $50 billion, and government transfers another $40 billion. Tax revenue is $100 billion. Which of the following is true?
a) The budget is balanced
b) There is a budget deficit of $50 billion
c) There is a budget deficit of $60 billion
d) There is a budget surplus of $10 billion
Homework Answers
Answer - Option B
There is a budget deficit of $ 50 billion
Expenses of government
= 60 + 50+40
= $ 150 billion
Revenue of government. = $ 100 billion
Since the revenue is less than expenses , there will be deficit and not surplus.
Deficit = 150-100
= $ 50 billion
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