Question

(a) What percentage of U.S. debt do foreigners hold? (See Figure 12.4.)

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(b) If the interest rate on U.S. Treasury debt is 4 percent, how much interest do foreigners collect each year from the U.S. Treasury? (Assume a total debt of $18 trillion.)

FIGURE 12.4: Debt Ownership

The bonds that create the national debt represent wealth that’s owned by bondholders. Almost half of that wealth is held by the U.S. government itself. The private sector in the United States holds only 21 percent of the debt, and foreigners own 33 percent.

Source: U.S. Treasury Department (2014 data).

Answer 1

Debt can be defined as the amount of money that is borrowed by a lender. Interest rate is the amount charged by a lender to borrower for the use of assets.

(a)

From the figure it is clear that Foreigners hold 33 percent of total US debt.

(b)

Total debt held by foreigners = $18 trillion

Interest rate = 4% or 0.04

The debt held by the foreigners is 33%

The total debt that is help by the foreigners is

Calculate amount of interest

Foreigners collect $237.6 billion as interest each year from the US Treasury.