The following describes some key variables regarding public debt in the UK. Debt to output is 95%, the growth rate of output is 1.2%, and the interest rate on debt is 1.5%. a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money? b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.8% per year? c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant? d) Explain briefly what the concept of "cyclically adjusted budget deficit" is and why is it relevant?
The following describes some key variables regarding public debt in the UK. Debt to output is 95%, the growth rate of output is 1.2%, and the interest rate on debt is 1.5%. a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money? b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.8% per year? c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant? d) Explain briefly what the concept of "cyclically adjusted budget deficit" is and why is it relevant?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The following describes some key variables regarding public debt in the UK. Debt to output is 95%, the growth rate of output is 1.2%, and the interest rate on debt is 1.5%.
a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money?
b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.8% per year?
c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant?
d) Explain briefly what the concept of "cyclically adjusted budget deficit" is and why is it relevant?
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Step 1: Describe why it has become an economic fashion for nations to maintain budgetary deficits
VIEWStep 2: Figure out the primary surplus the government has to run to ensure a stable debt-to-output ratio
VIEWStep 3: Examine how would the answer to part (a) change
VIEWStep 4: Figure out the primary surplus the government has to run to ensure a stable debt-to-output ratio
VIEWStep 5: Explain briefly what the concept of "cyclically adjusted budget deficit" and why it is important
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