Econ110B_prob5

# Econ110B_prob5 - Economics 110B Problem Set 5 Questions 1-3...

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Economics 110B Problem Set 5 Questions 1-3 ask you to calculate certain magnitudes for a hypothetical economy. At the start of 2014, the government owed \$50 B in debt on which the average nominal interest rate was 5%. During 2014, the government purchased \$25B in final goods and services, made \$25 B in transfer payments, and collected \$40 B in taxes. Also during 2014, consumers spent \$50 B on final goods and services, firms invested \$25 B in new equipment and structures, the economy exported \$25 B in goods and imported \$25 B in services. The government had started out the previous year (2013) also owing \$50 B and GDP during 2013 was \$100B. 1.) Calculate the following magnitudes: a.) GDP for 2014

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Unformatted text preview: b.) the government budget deficit for 2014 c.) the government budget deficit for 2013 d.) the government primary budget surplus for 2014 e.) the debt/GDP ratio as of the end of 2013 f.) the debt/GDP ratio as of the end of 2014 2.) How much taxes would the government have to collect in 2014 in order to keep the debt/GDP ratio from rising during 2014? 3.) Suppose instead that the government had started out 2014 owing \$100 B in debt instead of \$50 B. How much taxes would the government have to collect in 2014 in order to keep the debt/GDP ratio from rising between the start and end of 2014 in this case? 4.) Do exercise 1 from Chapter 19, page 537. 5.) Do exercise 4 from Chapter 19, pages 537-538....
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