EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Question
Chapter 1, Problem 5WWMD
To determine
The graph thatrepresents the FRED data on gross federal debt held by the public as a percent of
Expert Solution & Answer
Explanation of Solution
The dept to GDP ratio is the comparison of public debt of a country to its gross domestic product. This ratio indicates the ability to pay back debts of a particular country.
The following table represents the FRED data on gross federal debt held by the public as a percent of GDP for the United States:
| Date | Gross federal debt as % of GDP |
| 1945-01-01 | 103.15473 |
| 1946-01-01 | 106.31331 |
| 1947-01-01 | 89.85802 |
| 1948-01-01 | 78.80700 |
| 1949-01-01 | 78.64942 |
| 1950-01-01 | 73.04212 |
| 1951-01-01 | 61.77323 |
| 1952-01-01 | 58.47428 |
| 1953-01-01 | 56.11251 |
| 1954-01-01 | 57.48318 |
| 1955-01-01 | 53.25775 |
| 1956-01-01 | 49.44887 |
| 1957-01-01 | 46.26202 |
| 1958-01-01 | 47.02543 |
| 1959-01-01 | 44.99151 |
| 1960-01-01 | 43.65927 |
| 1961-01-01 | 42.40408 |
| 1962-01-01 | 41.06497 |
| 1963-01-01 | 39.84620 |
| 1964-01-01 | 37.51863 |
| 1965-01-01 | 35.13456 |
| 1966-01-01 | 32.41892 |
| 1967-01-01 | 31.00151 |
| 1968-01-01 | 30.77656 |
| 1969-01-01 | 27.32861 |
| 1970-01-01 | 26.38584 |
| 1971-01-01 | 26.01193 |
| 1972-01-01 | 25.20503 |
| 1973-01-01 | 23.91650 |
| 1974-01-01 | 22.24246 |
| 1975-01-01 | 23.42567 |
| 1976-01-01 | 25.48292 |
| 1977-01-01 | 26.37588 |
| 1978-01-01 | 25.81648 |
| 1979-01-01 | 24.37071 |
| 1980-01-01 | 24.91507 |
| 1981-01-01 | 24.61458 |
| 1982-01-01 | 27.65127 |
| 1983-01-01 | 31.29577 |
| 1984-01-01 | 32.37061 |
| 1985-01-01 | 34.73859 |
| 1986-01-01 | 38.00743 |
| 1987-01-01 | 38.92310 |
| 1988-01-01 | 39.17930 |
| 1989-01-01 | 38.83132 |
| 1990-01-01 | 40.44175 |
| 1991-01-01 | 43.66586 |
| 1992-01-01 | 46.00536 |
| 1993-01-01 | 47.36272 |
| 1994-01-01 | 47.11114 |
| 1995-01-01 | 47.17956 |
| 1996-01-01 | 46.25348 |
| 1997-01-01 | 43.97875 |
| 1998-01-01 | 41.05898 |
| 1999-01-01 | 37.71703 |
| 2000-01-01 | 33.25873 |
| 2001-01-01 | 31.37078 |
| 2002-01-01 | 32.37257 |
| 2003-01-01 | 34.15357 |
| 2004-01-01 | 35.16944 |
| 2005-01-01 | 35.22534 |
| 2006-01-01 | 34.95575 |
| 2007-01-01 | 34.84050 |
| 2008-01-01 | 39.44241 |
| 2009-01-01 | 52.21632 |
| 2010-01-01 | 60.15788 |
| 2011-01-01 | 65.16421 |
| 2012-01-01 | 69.64929 |
| 2013-01-01 | 71.38997 |
| 2014-01-01 | 72.91443 |
| 2015-01-01 | 71.97179 |
| 2016-01-01 | 75.70168 |
| 2017-01-01 | 75.13234 |
| 2018-01-01 | 76.52784 |
The following graph represents the FRED data on gross federal debt held by the public as a percent of GDP for the United States:
The post-1945 period is considered to be the post-war era. Just after the Second World War in 1946 (the debt ratio was a high of 10,31331), the United States experienced sustained declines in the federal debt-to-GDP ratio. The decrease in the federal debt-to-GDP ratio lasts until 1974 (22.24246 debt-to-GDP ratio).
The most critical period of debt growth is the 1980 to 1995. The next biggest increase was from 1974 to 1979. The debt has exploded surprisingly since 2008 (the Great Recession), the period from 2008 to the end of 2013 continues to rise in the federal debt-to-GDP ratio of United States.
The causes of sharp debt-to-GDP ratio expansion are the rising income inequality of the country and its persistent deficit.
President N's decision to dissociate the dollar from the gold standard in 1971 was the first reason behind persistent deficit because dollars were no longer exchanged for gold and the government was free to spend as long as it could, worsening the deficits.
High income disparities and large deficits result in spending inequalities, so rise in the amount of U.S. debt persists as a weapon that can keep the economy from slowing down and increase
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Students have asked these similar questions
Calculating the debt to GDP ratio
Suppose the following statistics characterize the financial health of the hypothetical economy Debtenburg at the end of 2017:
•
Gross domestic product (GDP) is equal to $180 billion.
•
The national debt is equal to $234 billion.
•
The government has a budget deficit of $9 billion.
•
The debt ceiling in Debtenburg is set at $253 billion.
The following calculations help you see how the ratio of debt to GDP changes from one year to the next.
Complete the first row of the following table by computing the ratio of national debt to GDP.
Suppose that nominal GDP remains at $180 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt.
Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.
Year
GDP
National Debt
Ratio…
Now that the government's national debt has been growing for several years, investors have become worried that the government might default on its
debt-that is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive an
interest rate of 10%.
If the government runs a budget defict of $10 billion in 2019, the national debt will increase by 5
True or False: At the end of 2019, the government of Debtenburg will exceed the legal limit on how much it can borrow.
True
O False
billion.
Suppose the following statistics characterize the financial health of the hypothetical economy Debtenburg at the end of 2017:
- GDP is equal to $150 billion
- The national debt is equal to $180 billion
- The government has a budget deficit of $9 billion
- The debt ceiling in Debtenburg is set at $198 billion
The following calculations help you see how the ratio of debt to GDP changes from one year to the next.
Complete the first row of the following table by computing the ratio of national debt to GDP.
Suppose that nominal GDP remains at $150 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt.
Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.
Now that the government’s national debt has been growing for several years, investors have become worried that the…
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