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Question 4 The following table provides data for 2019 for an economy. All data are in real or constant price terms. Component $ bill Component
Question 4 The following table provides data for 2019 for an economy. All data are in real or constant price terms. Component $ bill Component $ bill GDP 12,000 Public Debt (1 Jan 2019) 3,000 Indirect Taxes 180 Government Transfers 310 Subsidies 20 Government Purchases 450 Direct Taxes 200 Government Interest Payments 50 (a) Calculate the budget balance for this economy? Is there a budget deficit or surplus (BB = -450. Budget deficit). (b) What is the size of the budget balance as a share of GDP? (BB/Y = -0.0375) (c) Calculate the size of the primary budget balance as a share of GDP. (PBB/Y = -400/12,000 = -0.0333) (d) What is the public debt to GDP ratio at the beginning of 2019? (D/Y = 0.25) (e) Calculate the public debt to GDP ratio at the end of 2019. (D/Y = 3.450/ 12,000 = 0.2875) (f) Calculate the real interest rate on public debt. (0.0167 or 1.67%). (g) Suppose the growth rate of real GDP in 2020 is forecast to be 0%. Calculate the size of the primary budget balance (as a share of the 2020 forecast of real GDP) that would be required to keep the public debt to GDP ratio at the end of 2020 constant at 0.2575). (PBB/Y = 0.0048)
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