2. Calculating the debt to GDP ratio

Suppose the following statistics characterize the financial health of the hypothetical economy Spendia at the end of 2017:

Gross domestic product (GDP) is equal to $150 billion.

The national debt is equal to $225 billion.

The government has a budget deficit of $9 billion.

The debt ceiling in Spendia is set at $246 billion.

The following calculations help you see how the ratio of debt to GDP changes from one year to the next.

Complete the first row of the following table by computing the ratio of national debt to GDP.

Suppose that nominal GDP remains at $150 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt.

Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table.

Year GDP (Billion of Dollars) National Debt (Billion of Dollars) Ratio of National Debt to GDP

2017 150 225 ?

2018 150 ? ?

Now that the government's national debt has been growing for several years, investors have become worried that the government might default on its debtthat is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive an interest rate of 10%.

If the government runs a budget deficit of $10 billion in 2019, the national debt will increase by $_______ billion.

True or False: At the end of 2019, the government of Spendia will exceed the legal limit on how much it can borrow.