Question

Suppose that a country has no public debt in year 1 but experiences a budget deficit of billion in year​ 2, a budget surplus of billion in year​ 3, a budget surplus of billion in year​ 4, and a budget deficit of billion in year 5.

A) What is the absolute size of its public debt in year 4?
B) If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4?

Answer 1

a. 72 billion

b. 69.2%

Step-by-step explanation:

a. The absolute size of its public debt in year 4 would be the total value of the deficit from year 1 till 4.

= 0 + 50 + 30 - 10 (budget surplus so it reduces deficit) - 2

= 72 billion

b. Percentage of real GDP in year 4;

= (72/104) * 100%

= 69.2%