Question

Suppose that the federal government had a budget deficit of $80 billion in year 1 and $90 billion in year 2, but that it experiences budget surpluses of $40 billion in year 3 and $30 billion in year 4. Also assume that the government uses any budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have

Answer 1

Answer: Increased by $100 billion.

Step-by-step explanation:

When the Federal Government has a budget deficit, this means that it has spent more than it earned from taxes. Financing the deficit would require borrowing some money from lenders.

The two budget deficits in the first and second years of $80 billion and $90 billion therefore are both financed by Debt meaning the Federal Government owes,

= 80 + 90

= $170 billion.

The Government uses the Surpluses to pay off debt and they had surpluses of $40 and $30 billion.

= 40 + 30

= $70 billion.

They paid off $70 billion of the loans leaving a loan balance of,

= $170 - $70

= $100 billion