Question

Suppose that a country has no public debt in year 1 but experiences a budget deficit of $50 billion in year 2, a budget deficit of $30 billion in year 3, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4.

What is the absolute size of its public debt in year 4?
If its real GDP in year 4 is $104 billion, what is this country?

Answer 1

The absolute size of its public debt in year 4 is $72 billion.

The GDP is 69.23% of the GDP.

Step-by-step explanation:

The Public debt can be calculated as follow

Public debt = Total Deficits - Total Surpluses

Where

Total Deficits = Budget deficit in year 2 + Budget deficit in year 3 + Budget deficit in year 4 = $50 billion + $30 billion + $2 billion = $82 billion

Total Surpluses = Budget surplus in year 3 = $10 billion

Placing valeus in the formula

Public debt = $82 billion - $10 billion = $72 billion

Use the following formula to calculate the percentage of public debt to GDP

Public debt to GDP = Total Public debt in year 4 / GDP in year 4

Public debt to GDP = $72 billion / $104 billion

Public debt to GDP = 0.6923

Public debt to GDP = 69.23%