L012-4 8. Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $4 trillion while raising only $3 trillion worth of taxes. (a) What will be the government's deficit? (b) If the government finances the deficit by issuing bonds, what amount of bonds will it issue? (c) At a 4 percent rate of interest, how much interest will the government pay each year? 11 (d) Add the interest payment to the government's $4 trillion expenditures for the next year, and assume that tax revenues remain at $3 trillion. In the second year, compute the (i) Deficit. (ii) Amount of new debt (bonds) issued. (iii) Total debt at end of year. (iv) Debt service requirement