Question

Suppose that a country has no public debt in year 1 but experiences a budget deficit of $50 billion in year 2, a budget deficit of $30 billion in year 3, a budget surplus of $10 billion in year 4, and a budget deficit of $2 billion in year 5.

a. What is the absolute size of its public debt in year 5?     

     Instructions: Enter your answer as a whole number. For the absolute size of its public debt, enter your answer as a positive number.

b. If its real GDP in year 5 is $104 billion, what is this country’s public debt as a percentage of real GDP in year 5?     

     Instructions: Round your answer to 2 decimal places.      

Answer 1

The public debt is how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments. The term "public debt" is often used interchangeably with the term sovereign debt. Public debt usually only refers to national debt.

A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals.

Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices) and is often referred to as "constant-price," "inflation-corrected", or "constant dollar" GDP.

The absolute size of the debt is (net deficit-net surplus)

A)so here absolute size of the debt=$(50+30+2)-$10=$42 billion

B)The debt is 40.39 percent of real GDP ($42 billion / $104 billion)