Question

Suppose that a country has no public debt in year 1 but experiences a budget deficit of $20 billion in year 2, a budget deficit of $20 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?

Answer 1

(a)

Year	Budget deficit or budget surplus ($ billion)
1	0
2	deficit of 20
3	deficit of 20
4	surplus of 10
5	deficit of 2

Public debt = Sum of budget deficit - sum of budget surplus

Public debt = (20 + 20 + 2) - (10)

Public debt = 32.

Public debt in year 5 is $32 billion.

(b) Real GDP in year 5 = $104 billion.

Public debt in year 5 = $32 billon.

country public debt as % of real GDP in year 5 = ($32 / $104) * 100

country public debt as % of real GDP in year 5 = 30.77%

30.77% of real GDP is public debt in year 5