Question

Government got the loan from the international bank ($6 bln.). This money invested in the economy allows to increase the national income equals to $2 000 bln. per year. The debt should be covered in 4 years, annual interest rate is 10%.

Will this loan lead to the increase of the government debt in the 4^th year?

Answer 1

Answer : Given, laonable amount (P) = $6 Ibn; Time (t)= 4 years; rate of interest (r) = 10% = 0.1

Here we have to use the simple interest formula because here interest is not compounding.

The formula of simple interest is

S.I. = P × r × t = 6 × 0.1 × 4 = 2.4

This means 4 years interest is $2.4 Ibn which the government has to pay to the bank where one year interest is $0.6 Ibn.

Therefore, the government has to pay ( 6 + 2.4 )

= $8.4 Ibn after 4 years.

Now we can say that loan increases the debt in 4th year.