Question

Year 1946 1947 1948 1949 1950 Revenues 39.3 38.5 41.6 39.4 39.4 Government Expenditures 55.2 54.5 29.8 38.8 42.6 Suppose the level of debt at the end of 1945 was $350 billion. a. Use the information in the table above to determine the debt level at the end of 1947. (show your calculations and explain) Type your answer here:

Answer 1

Answer (a)

In year 1946, Government expenditure = 55.2 and Revenue = 39.3. As we can see than Government expenditure > Revenue. This means that have borrowed as Government expenditure > Revenue. This borrowed amount will increase debt. So in 1946 they will incur additional debt = 55.2 - 39.3 = 15.9

Thus, At the end of 1946, Debt = Debt at end of year 1945 + Additional debt in year 1946 = 350 + 15.9 = 365.9

In year 1947, Government expenditure = 54.5 and Revenue = 38.5. As we can see than Government expenditure > Revenue. This means that have borrowed as Government expenditure > Revenue. This borrowed amount will increase debt. So in 1947 they will incur additional debt = 55.5 - 38.5 = 16

Thus, At the end of 1947, Debt = Debt at end of year 1946 + Additional debt in year 1947 = 365.9 + 16 = 381.9

Hence, At the end of 1947, Debt level = $381.9