question archive Suppose that a particular economy has a real GDP of 12
Subject:EconomicsPrice:2.88 Bought3
Suppose that a particular economy has a real GDP of 12 .0 trillion in 2004. It grows to 15.0 trillion in 2005. meanwhile, the national debt was 8.0 trillion in 2004. In 2005 the Federal Government ran a budget deficit of 0.8 trillion, which was totally financed by borrowing. Given the set of circumstances the national debt as a percentage has:
a. Increased,
b. Decreased,
c. Doubled,
d. Remain constant.
Let's compute the national debt as a percentage of Real GDP for both years.
National debt as a percentage of Real GDP = National Debt / Real GDP
2004:
National debt as a percentage of Real GDP = 8 trillion / 12 trillion
= 66.67%
2005:
National debt = 2004 National debt + debt-financed deficit
= 8.0 trillion + 0.8 trillion
= 8.8 trillion
National debt as a percentage of Real GDP = 8.8 trillion / 15 trillion
= 58.67%
The answer is thus b. Decreased.