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 $40 billion in year 2, a budget deficit of $30 billion 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. Do not include a plus or minus sign. 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 = percent.

Explanation / Answer

At the end of second year debt is $40 billion

At the end of year 3, debt = $40 + $20 = $60 billion

At the end of year 4, debt is $60-410 = $50 billion

At the end of year 5 debt is $52 + $2 = $52 billion

It is 50% of its $104 billion real GDP

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