Problem Set 3 - University of Southern California Department of Economics ECON 360 Public Finance Fall 2016 Problem Set 3 1 Write a short essay(1 page

Problem Set 3 - University of Southern California...

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University of Southern California Department of Economics ECON 360: Public Finance Fall 2016 Problem Set 3 1. Write a short essay (1 page long, typewritten) on the European Sovereign Debt Crisis explaining: (i) some of the macroeconomic imbalances that contributed to the financial crisis in Europe, (ii) how the financial crisis translated into a sovereign debt crisis and some of the legacies of the Sovereign Debt Crisis (3 pts). 2. Assume that U.S. Government had announced a fiscal plan at end of 2015 aimed at reducing debt to GDP. The planned consisted of imposing budget balances of +3.6 percent of GDP for 6 consecutive years (2016-2021) (3 pts). a) Using the excel file ‘debt dynamics’, input the budget surplus announced plan (in column H, period 2016-2021) and compute the debt to GDP ratio reached by 2021? b) What is the budget balance to GDP which would stabilize debt to GDP at 2021 levels (hint:
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