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deficits and debt
Asked: Apr 23rd, 2017
The national debt is:
1. Explain the difference between our federal government's deficit and debt.
2. What would happen to the budget deficit if the:
a) GDP growth rate jumped from 1 percent to 3 percent?
b) inflation increased by 2 percentage points?
3. Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes.
a) What will be the government's deficit?
b) If the government finances the deficit by issuing bonds, what amount of bonds will it issue?
c) At a 10 percent rate of interest, how much interest will the government pay each year?
d) If this same budget deficit occurs for a second year, what would the national debt become? And at a 10 percent rate of interest, now how much interest would have to be paid by the government each year?
4.If the interest rate on U.S. Treasury Debt is 3 percent, how much do foreigners collect each year from the U.S. Treasury? (Assume total debt of $13 trillion.)
5. Can government spending that causes crowding out be detrimental to long-run economic growth? Explain.