Q4. You are given the following information about country A in period 0:r (interest rate paid...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Q4. You are given the following information about country A in period 0:r (interest rate paid on debt) = 5%; g (growth rate of GDP) = 9%; b (debt-to-GDP ratio) = 80%. (a) Calculate the primary deficit to GDP ratio at which the debt can be stabilized. (b) Suppose in period 1, the country is running a primary deficit at the level obtained in part (a). Starting period 2, the country faces a recession and the growth rate falls to 7%. Calculate GDP, total Debt, the debt-to-GDP ratio, and the ratio of interest payments to GDP for the next three periods (Period2, Period3, Period4). Use the grid below to fill in your answers. Hint: Fill out each column first and then move to the next column Growth Rate Y (in Dollars) D (in Dollars) Debt/GDP Ratio (b) Interest Paid (rD) Ratio of Primary Deficit to GDP (Freeze so that this is always kept at the answer to a) Primary Deficit (in Dollars) New Debt (Interest + Primary Deficit) Total Debt (copy this number for D in the next column) Period 0 100 80 Period 1 9% Period 2 Period 3 Period 4 7% 7% 7% (c) Is this situation sustainable? What are the options for the government to make the situation sustainable again? (d) Is this process likely to be easy? Briefly describe the likely winners and losers from different policy options that may be adopted to stabilize b. Q4. You are given the following information about country A in period 0:r (interest rate paid on debt) = 5%; g (growth rate of GDP) = 9%; b (debt-to-GDP ratio) = 80%. (a) Calculate the primary deficit to GDP ratio at which the debt can be stabilized. (b) Suppose in period 1, the country is running a primary deficit at the level obtained in part (a). Starting period 2, the country faces a recession and the growth rate falls to 7%. Calculate GDP, total Debt, the debt-to-GDP ratio, and the ratio of interest payments to GDP for the next three periods (Period2, Period3, Period4). Use the grid below to fill in your answers. Hint: Fill out each column first and then move to the next column Growth Rate Y (in Dollars) D (in Dollars) Debt/GDP Ratio (b) Interest Paid (rD) Ratio of Primary Deficit to GDP (Freeze so that this is always kept at the answer to a) Primary Deficit (in Dollars) New Debt (Interest + Primary Deficit) Total Debt (copy this number for D in the next column) Period 0 100 80 Period 1 9% Period 2 Period 3 Period 4 7% 7% 7% (c) Is this situation sustainable? What are the options for the government to make the situation sustainable again? (d) Is this process likely to be easy? Briefly describe the likely winners and losers from different policy options that may be adopted to stabilize b.
Expert Answer:
Answer rating: 100% (QA)
a To calculate the primary deficit to GDP ratio at which the debt can be stabilized we can use the following formula Primary Deficit to ... View the full answer
Related Book For
Principles of Macroeconomics
ISBN: 978-0134078809
12th edition
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
Posted Date:
Students also viewed these economics questions
-
4. A process was set to meet the design specifications of USL = 26 and LSL = 18. The standard deviation of the process was found to be 1.2. The process mean was set to 22.5. a) Calculate the process...
-
123 Compare the purely graphical properties of these two notations, and the ways in which the graphical properties of each display correspond to the information structure being defined. Describe...
-
You are given the following information about the economy in 2015 (all in billions of dollars): a. Find equilibrium income. Show that the government budget deficit (the difference between government...
-
What is a random variable? What is a discrete random variable? What is a continuous random variable? Give some examples of discrete random variables.
-
What is your assessment of Walt Disney Company's financial and operating performance in fiscal years 2010-2011? What is your assessment of the relative contribution of the Disney SBUs to the...
-
What is the ground state energy, according to Bohr theory, for (a) He+, (b) Li2+, (c) Deuterium (an isotope of hydrogen whose nucleus contains a neutron as well as a proton)?
-
Current Account Deficits. A deficit on the current account increases foreign liabilities. Explain why this is more of a concern to the eurozone than a country like Brazil.
-
An electronic device dissipating 30 W has a mass of 20 g and a specific heat of 850 J/kg C. The device is lightly used, and it is on for 5 min and then off for several hours, during which it cools...
-
retailer buys a set of luggage for $95.50. It is marked up by 48% of his cost. Find the profit if it is 40% of the markup.
-
Preparation of a tax return for a partnership taxpayer Your client Nicole and Sam attended your office to have their 2 0 2 3 - year tax return prepared. Nicole Mania & Sam Baker are equal partners of...
-
Q.1: You are thinking to invest buy purchasing bond from the IPO market. Suppose Max Company offers you a bond that has 10 % annual coupon payable semiannually and a face values of tk. 1000. There...
-
Discuss the factors that a firm should consider in deciding whether to enter a foreign market.
-
Consider the opening case in this chapter. How has Mexicos success affected the Canadian and U.S. economies?
-
What was the goal of the Treaty of Rome?
-
What are the basic differences between a JV and other types of strategic alliances?
-
What efforts have South American countries made to regionally integrate their economies?
-
Required information [The following information applies to the questions displayed below.] Forten Company's current year income statement, comparative balance sheets, and additional information...
-
A summary of changes in Pen Corporation's Investment in Sam account from January 1, 2011, to December 31, 2013, follows (in thousands): ADDITIONAL INFORMATION 1. Pen acquired its 80 percent interest...
-
The economy of Mayberry is currently in equilibrium at point A on the graph. Prince Barney of Mayberry has decided that he wants the economy to grow and has ordered the Royal Central Bank of Mayberry...
-
Of the following four scenarios, which survey results are likely to be the most statistically significant and which are likely to be the least statistically significant. Explain your answer. Scenario...
-
On January 1, 2014, the top federal income tax bracket in the United States went from 35 percent to 39.6 percent. Many republicans claimed that lowering the rewards for working (the net after-tax...
-
What role does growth-need strength play in the job characteristics model?
-
Explain the difference between halo errors and recency errors in performance appraisal.
-
When is a team effective?
Study smarter with the SolutionInn App