Answered: ge interest rate

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter17: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 7SQP

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Question

Unlike households, governments are often able to sustain large debts. For example, in 2019, the U.S. government’s total debt reached $21.2 trillion, approximately equal to 105.3% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 1.3%. However, running budget deficits becomes hard when very large debts are outstanding.

a. Calculate the dollar cost of the annual interest on the government’s total debt, assuming the interest rate and debt figures previously cited. Enter your answer in billions of dollars, and round to the nearest tenth.

- Annual interest: $ (Billion)

b. If the government operates on a balanced budget before interest payments are taken into account, at what rate must GDP grow for the debt–GDP ratio to remain unchanged? Enter your answer as a percentage and round to the nearest tenth of a percent.

- Rate of GDP growth: (%)

c. Calculate the total increase in national debt if the government incurs a deficit of $600 billion in 2020. Enter your answer in billions of dollars and round to the nearest tenth.

- Debt increase: $ (Billion)

d. At what rate would GDP have to grow in order for the debt–GDP ratio to remain unchanged when the deficit in 2020 is $600 billion? Enter your answer as a percentage and round your answer to the nearest hundredth of a percent.

- Rate of GDP growth: (%)

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