Question

In 2011, the Congressional Budget Office predicted that the US economy would grow by 2.8% per year on average over the decade from 2011 to 2021. At this rate, in 2021, the ratio of national debt to GDP (gross domestic product) is predicted to be 76% and the federal deficit is predicted to be $861 billion. Both predictions depend heavily on the growth rate. If the growth rate is 3.3% over the same decade, for example, the predicted 2021 debt-to-GDP ratio is 66% and the predicted 2021 deficit is $521 billion. If the growth rate is even stronger, at 3.9%, the predicted 2021 debt-to-GDP ratio is 55% and the predicted 2021 deficit is $113 billion.¹ There are only three individual cases given (for three different economic scenarios), and for each we are given values of three variables.

Click here to access StatKey.


¹Gandel, S., ‘‘Higher growth could mean our debt worries are all for nothing,” Time Magazine, March 7, 2011, p. 20.

(a) Use StatKey or other technology and the three cases given to find the regression line for predicting 2021 debt-to-GDP ratio (in percents) from the average growth rate (in percents) over the decade 2011 to 2021.

Round your answer for the intercept to the nearest integer and your answer for the slope to one decimal place.

Ratio^= Enter your answer in accordance to item (a) of the question statement + Enter your answer in accordance to item (a) of the question statement (Growth)

eTextbook and Media

(b) Round your answers to one decimal place.

What 2021 debt-to-GDP ratio does the model in part (a) predict if growth is 2%?

Ratio^= Enter your answer in accordance to item (a) of the question statement   %

What 2021 debt-to-GDP ratio does the model in part (a) predict if growth is 4%?

Ratio^= Enter your answer in accordance to item (a) of the question statement   %

eTextbook and Media

(c) Studies indicate that a country's economic growth slows if the debt-to-GDP ratio hits 90%. Using the model from part (a), at what growth rate would we expect the ratio in the US to hit 90% in 2021?

Round your answer to two decimal places.

growth = Enter your answer in accordance to the question statement   %

eTextbook and Media

(d) Use StatKey or other technology and the three cases given to find the regression line for predicting the deficit (in billions of dollars) in 2021 from the average growth rate (in percents) over the decade 2011 to 2021.

Round your answers to the nearest integer.

Deficit^= Enter your answer in accordance to item (d) of the question statement + Enter your answer in accordance to item (d) of the question statement (Growth)

eTextbook and Media

(e) Round your answers to the nearest integer.

What 2021 deficit does the model in part (d) predict if growth is 2%?

Deficit^= Enter your answer in accordance to item (d) of the question statement  billion dollars

What 2021 deficit does the model in part (d) predict if growth is 4%?

Deficit^= Enter your answer in accordance to item (d) of the question statement  billion dollars

eTextbook and Media

(f) The deficit in 2011 was $1.4 trillion. What growth rate would leave the deficit at this level in 2021?

Round your answer to three decimal places.

Growth = Enter your answer in accordance to the question statement   %

Answer 1