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

Question

Suppose that a country has no public debt in year 1 but experiences a budget deficit of $50 billion in year 2, a budget deficit of $20 blion in year 3, a budget surplus of $10 billion in year 4, and a budget deficit of $2 billion in year 5. a. What is the absolute size of its public debt in year 5? Instructions: Enter your answer as a whole number. For the absolute size of its public debt, enter your answer as a positive number. Public debt = billion. b. If its real GDP in year 5 is $104 billion, what is this country's public debt as a percentage of real GDP in year 5? Instructions: Round your answer to 2 decimal places. Public debt =

Explanation / Answer

Assuming that the budget deficit increases public debt and surplus reduces it, the net public debt in year 5 is

= 0+50-20-10+2

=62 billon

As a percentage of GDP, this debt is 62/104 = 59.62%

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