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Greece, Ireland, Portugal, and Spain all went through national budget difficulti

ID: 1142223 • Letter: G

Question

Greece, Ireland, Portugal, and Spain all went through national budget difficulties in recent years. Use the data below to answer questions regarding the sovereign debts of these nationals (All data comes from the OECD and is in billions of current US dollars.).

2000 2010

Debt GDP Debt GDP

Greece $138 $127 $488 $308

Ireland $34 $98 $104 $206

Portugal $62 $118 $190 $231

Spain $292 $586 $700 $1,420

a. Compute the debt-to-GDP ratio for all four nations in both 2000 and 2010.

b. Compute the average yearly budget deficit for each of the nations over this period.

c. In your judgment, which of the four nations was in the worse fiscal shape in 2010? Use your computations from above to justify your answer.

Explanation / Answer

a.

2000

2010

Nation

Debt

GDP

Debt

GDP

Debt to GDP-2000

Debt to GDP-2010

Greece

138

127

488

308

1.09

1.58

Ireland

34

98

104

206

0.35

0.50

Portugal

62

118

190

231

0.53

0.82

Spain

292

586

700

1,420

0.50

0.49

Debt to GDP is calculated using the formula = Debt/GDP

b. Average yearly deficit for Greece = (488-138)/10 = 35

Average yearly deficit for Ireland = (104-34)/10 = 7

Average yearly deficit for Portugal = (190-62)/10 = 12.8

Average yearly deficit for Spain = (700-292)/10 = 40.8

2000

2010

Nation

Debt

GDP

Debt

GDP

Average annual deficit

Greece

138

127

488

308

35

Ireland

34

98

104

206

7

Portugal

62

118

190

231

12.8

Spain

292

586

700

1,420

40.8

c. Looking at the debt to GDP ratio and average yearly deficit, Greece is in worse fiscal shape as its respective value for both parameters is high when compared with other nations.

2000

2010

Nation

Debt

GDP

Debt

GDP

Debt to GDP-2000

Debt to GDP-2010

Greece

138

127

488

308

1.09

1.58

Ireland

34

98

104

206

0.35

0.50

Portugal

62

118

190

231

0.53

0.82

Spain

292

586

700

1,420

0.50

0.49