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Homework answers / question archive / Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion

Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion

Economics

Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion.

a. How much will its new national debt be?

 

b. Compute its debt-GDP ratio.

 

c. Suppose its GDP grows by 1% in the next year and the budget deficit is again $100 billion. Compute its new level of national debt and its new debt-GDP ratio.

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(a) Computation of New National Debt:

When national debt = $5,000 billion, a budget deficit of $100 billion will increase national debt by this amount.

New national debt = Existing national debt + Budget deficit = $(5,000 + 100) = $5,100 billion

 

 

(b) Computation of Debt-GDP Ratio: 

Debt-GDP Ratio = Previous debt/GDP 

= $5,000 billion / $10,000 billion 

= 0.5 or 50%

 

(c) Computation of New Debt-GDP Ratio: 

Debt-GDP Ratio = New Debt/GDP 

= $5,100 billion / ($10,000*101%)billion

= $5100 billion/$10,100 billion 

= 0.5050 or 50.50%

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