Macroeconomics
Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 15, Problem 6NP

a)

To determine

To find: The nominal deficit when nominal GDP growth rate is 10% and nominal outstanding debt is 1000.

b)

To determine

To find: The nominal deficit.

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Which of the following will cause a reduction in the debt-to-GDP ratio? A) an increase in the real interest rate B) an increase in the ratio of the primary deficit to GDP C) an increase in the growth rate of output D) all of the above
Consider an economy characterized by the following facts: • The debt-to-GDP ratio is 40% • The primary deficit is 4% of GDP • The growth rate of GDP is 3%. • The real interest rate is 3%, and there is no inflation. (a) Using your favorite spreadsheet software, compute the debt-to-GDP ratio in 10 years, assuming that the primary deficit stays at 4% of GDP each year; the economy grows at the normal growth rate in each year; and the real interest rate is constant, at 3%. (b) Suppose the real interest rate increases to 5%, but everything else remains as in part (a). Compute the debt-to-GDP ratio in 10 years. (c) Suppose the normal growth rate falls to 1%, and the economy grows at the normal growth rate each year. Everything else remains as in part (a). Calculate the debt-to-GDP ratio in 10 years and compare your answer to part (b)
The tax revenues of the government equal t percent of GDP, and the expenditures z percent of GDP (t>z). The level of public debt-to-GDP ratio at the end of the previous period was equal to bo. The nominal rate of interest is i, inflation equals T. What should be the population growth rate to make the government able to maintain the debt-to-GDP ratio at the level of bo in the long-run if the rate of technological progress is equal to x percent? Assume that the economy is in the steady state in the long-run as the Solow model predicts.
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