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The following question deals with a hypothetical economy, Caledonia, in a certain fiscal year. The Caledonian government's spending excluding public debt charges is $260 billion,
The following question deals with a hypothetical economy, Caledonia, in a certain fiscal year. The Caledonian government's spending excluding public debt charges is $260 billion, and federal tax revenues are $280 billion. a. If the interest rate is 5% and public debt at the start of the year is $600 billion then the government's budget deficit is $ billion. If the interest rate is still 5% but public debt at the start of the year is $700 billion then the budget deficit is $ billion. Therefore budget deficits and the size of the public debt are (Click to select) related. b. If the interest rate is 4% and public debt at the start of the year is $600 billion then the government's budget deficit is $ billion. If public debt at the start of the year is still $600 billion but the interest rate is 5% then the budget deficit is $ billion. Therefore budget deficits and the interest rate are (Click to select) related
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