Find the largest nominal deficit that the government can run without raising the debt-GDP ratio, under each of the following sets of assumptions:(a)Suppose that real GDP is 20,000 and remains constant, nominal GDP is initially 30,000, inflation is 4%, and the debt-GDP ratio is 1.2. (b)Suppose that nominal GDP growth is 5% and outstanding nominal debt is 1500.
What will be an ideal response?
Use the equation: change in debt/GDP = deficit/GDP - (debt/GDP × g), where g is the growth rate of GDP.
| (a) | 0 = deficit/30,000 - (1.2 × 0.04), so 0.048 = deficit/30,000, so deficit = 1440. |
| (b) | 0 = deficit/GDP - (1500/GDP) × 0.05); so deficit = 75. |
You might also like to view...
Always There Wireless is wireless monopolist in a rural area. There are 200 customers, each of whom has a monthly demand curve for wireless minutes of Qd = 200 - 100P, where P is the per-minute price in dollars and Q is the number of wireless minutes. The marginal cost of providing the wireless service is $0.25 per minute. If Always There charges $0.50 per minute, how many minutes will each customer buy each month?
A. 200 B. 150 C. 175 D. 250
A brew pub is opening in a former warehouse. Its fixed costs include ______, and variable costs include ______.
a. its liquor license fee; payments for hops and yeast b. wages and tips paid to staff; hiring a marketing service c. utility payments; health inspection charges d. brewery association dues; daily sales receipts
During a business cycle recession, it is very likely that real GDP will
A) be greater than potential GDP. B) be less than potential GDP. C) equal nominal GDP and equal potential GDP. D) exceed nominal GDP. E) equal nominal GDP but not equal potential GDP.
Which of the following is true of the demand curve faced by a monopolist?
a. A monopolist's demand curve is infinitely elastic b. A monopolist's demand curve is more elastic than a competitive firm's demand curve. c. A monopolist faces a relatively inelastic demand curve. d. A monopolist's demand curve coincides with its marginal revenue curve. e. A monopolist faces a positively sloped demand curve.