In year 1 the government spends $405 million and collects $356 million in taxes. Public saving...

In year 1 the government spends $405 million and collects $356 million in taxes. Public saving in year 1 is equal to $ million and the government debt is equal to $ million.

In year 2 the government spends $390 million and collects $360 million in taxes. Public saving in year 2 is equal to $ million and the government debt is now equal to $ million.

In year 3 the government spends $360 million and collects $358 million in taxes. Public saving in year 3 is equal to $ million and the government debt is now equal to $ million.

In year 4 the government spends $405 million and collects $425 million in taxes. Public saving in year 4 is equal to $ million and the government debt is now equal to $ million.

Expert Solution

In year 1 the government spends $405 million and collects $356 million in taxes. Public saving in year 1 is equal to 0($-49 million) and the government debt is equal to $49 million.

In year 2 the government spends $390 million and collects $360 million in taxes. Public saving in year 2 is equal to 0( $-30 million) and the government debt is now equal to $30 million.

In year 3 the government spends $360 million and collects $358 million in taxes. Public saving in year 3 is equal to 0($-2 million) and the government debt is now equal to $2 million.

In year 4 the government spends $405 million and collects $425 million in taxes. Public saving in year 4 is equal to $20 million and the government debt is now equal to 0 ($-20 million).

What Governments borrow money to pay for budget deficits, and whenever a government borrows money, this adds to its national / Govt. debt.

Public Savings = Tax – Government Spending

Rahul Sunny answered 1 year ago

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