Question

Suppose that we have the following information concerning the government's finances and the macroeconomy for a given year: Government Debt: $12 trillion Inflation: 10% Nominal Deficit: $1.5 trillion What is the real deficit for the year

Answer 1

Answer: $300 billion

Step-by-step explanation:

The real deficit that a Government has is one that has been adjusted for inflationary effects. It is calculated by subtracting the inflation rate times the total debt from the nominal deficit.

= Nominal deficit - (Inflation rate * Total debt)

= 1.5 trillion - ( 10% * 12 trillion)

= 1.5 trillion - 1.2 trillion

= $300 billion