Principles of Macroeconomics (11th Edition)
11th Edition
ISBN: 9780133023671
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 9, Problem 1P
To determine
Accumulated debt and size of budget.
Expert Solution & Answer
Explanation of Solution
Debt at the end of year 1 is 1 million lavs.
Debt at the end of year 10 is 10 million lavs.
The interest rate on debt in year 10 is 500,000 lavs
Thus the government will be spending 10,500,000 lavs
The taxes at the end of year 10 is 9 million lavs.
The taxes are raised to cover interest payments each year so that the budget deficit remains at 1,000,000
Economics Concept Introduction
Concept introduction:
Budget deficit: Budget deficit is a situation in which the expenditure of the government exceeds the revenue of the government.
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Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GH¢8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of GH¢1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Ghana…
Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal
Policy. The Research Director of the Ministry brought you the following data on Ghana for the
previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021,
households in Ghana saved 20% of their disposable income (Y) and spent the rest on consumption.
In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of
income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G)
which stood at GHe8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00
(independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood
at GH€2,500.00. In addition, the country's import (M) during the previous fiscal year comprises of
GH¢1,000.00 which was independent of the country's national income and 10% which was
dependent of the country's national income. Given these data on Ghana…
Chapter 9 Solutions
Principles of Macroeconomics (11th Edition)
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