Question

In: Economics

1. Consider the annual government budget constraint of a government: Gt + (1 + rt)Bt =...

1. Consider the annual government budget constraint of a government:
Gt + (1 + rt)Bt = Tt + Bt+1

for t=2019,2020,... Denote GDP by Yt.
(a) Express the budget constraint in terms of variables measured as a fraction of GDP.
(b) Suppose GDP grows at 4%, the interest rate is 2% and the primary deficit is 3% of GDP. If debt to GDP is 1
(100%) in 2019, write down the evolution of debt to GDP ratio for 2020, 2021 and 2022. Is it increasing or decreasing?
(c) Suppose now that initial debt to GDP is 2 in 2019, write down the evolution of debt to GDP ratio for 2020, 2021
and 2022. Is it increasing or decreasing?
(d) Write down the condition that needs to be satisfied for all variables to be constant as a fraction of GDP.
(e) What do you think happens if GDP growth is only 1% instead?

Please give as detailed as an explanation and show as much work as possible for each part of the problem, especially part d. This is from a study guide to an upcoming test I have and I do not understand how to do it. Thanks

Solutions

Expert Solution

Rahul Sunny answered 2 weeks ago
Next > < Previous

Related Solutions

1. Consider the inter-temporal budget constraint for the government and consumers. Assume the interest rate is...
1. Consider the inter-temporal budget constraint for the government and consumers. Assume the interest rate is r= 5%. (a) Suppose the government cuts taxes today by $100 billion. Describe three possible ways the government can change spending and taxes to satisfy its budget constraint. (b) Suppose consumers obey the permanent-income hypothesis. Would their consumption rise, fall, or stay the same for each of the alternatives considered in part (a)? (c) What happens to private saving, total saving, and investment in...
Detail the theory of budget constraint with an example of your budget constraint.
Detail the theory of budget constraint with an example of your budget constraint.
app ?(?, ?) = ?? + ?, and the budget constraint ??? + ??? ≤ ?....
app ?(?, ?) = ?? + ?, and the budget constraint ??? + ??? ≤ ?. Assume throughout that all prices and quantities arepositive and infinitely divisible. Derive the consumer’s indirect utility function ?(∙). Then, derive the consumer’s expenditure function, e(∙), directly from ?(∙). Finally, derive the consumer’s Hicksian/compensated demand functions (denoted ? and ? , respectively) from e(∙).
Describe a budget constraint that would result in a kink. Draw the budget constraint, being careful...
Describe a budget constraint that would result in a kink. Draw the budget constraint, being careful to label all kink points with corresponding x and y values.
For each of the following cases, (1) graph the budget constraint and at LEAST 2 indifference...
For each of the following cases, (1) graph the budget constraint and at LEAST 2 indifference curves (2) indicate the utility maximizing point (and the indifference curve that corresponds with that point) (3) SHOW and briefly explain what you would expect to happen if the price of the good changed as indicated, in terms of income and substitution effects. (Show income and substitution effects on your graph too) In all cases, assume that your intital income is $50 and that...
For each of the following cases, (1) graph the budget constraint and at LEAST 2 indifference...
For each of the following cases, (1) graph the budget constraint and at LEAST 2 indifference curves, (2) indicate the utility maximizing point (and the indifference curve that corresponds with that point), and (3) SHOW and briefly explain what you would expect to happen if the price of the good changed as indicated, in terms of income and substitution effects.  (Unlike the exam, you MUST show income and substitution effects on the graph.) In all cases, assume that your intital income...
What are some of the arguments for and against requiring the annual federal government budget to...
What are some of the arguments for and against requiring the annual federal government budget to be balanced
Effects of a government budget deficit Consider a hypothetical open economy.
Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol)...
1. (a) Your company has $3000 to spend on widgets and Gadgets. Derive the budget constraint...
1. (a) Your company has $3000 to spend on widgets and Gadgets. Derive the budget constraint when the per unit costs of Widgets and Gadgets are $10 and $20 respectively. (b) Suppose the per unit price of Widgets goes up to $20, how will the price increase alter the constraint of the company? Show the income and substitution effects after the price change.
1. Explain how the intertemporal budget constraint and indifference curves are used to derive a consumer’s...
1. Explain how the intertemporal budget constraint and indifference curves are used to derive a consumer’s optimal choice of current and future consumption. 2. Explain how the desired levels of capital and investment are affected by changes in the expected marginal product of capital, the user cost of capital, and taxes.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT