{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PS8 - DEPARTMENT OF ECONOMICS UNIVERSITY OF CALIFORNIA...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
D EPARTMENT OF E CONOMICS F ALL 2009 U NIVERSITY OF C ALIFORNIA, B ERKELEY E CON 182 Problem Set 8 Due in class on Thursday, November 5 th at the beginning of lecture . Students that show their work and write neatly will be graded favorably. Please write your full name, GSI, and section time on your problem set. 1. The Sustainability of Public Debt This question asks you to explore the important issue of public debt sustainability, using an analogous framework developed in the lecture for current account sustainability. Define $B as total government debt in nominal terms, $PS the primary surplus in nominal terms and $FS the fiscal surplus in nominal terms. Note that $FS = $T - $G i$B and $PS = $T - $G. Note also that $FS t = $B t+1 - $B t . a). Derive the primary surplus (as a fraction of GDP) required to stabilize the ratio of public debt to GDP at its current level. (Hint: Think about the analogous quantities for the fiscal surplus and primary surplus in the international context.) b). Interpret the sustainability rule you found above. c). Obtain the most recent data on B/Y for the US and Japan (Hint: The Economist readings for this week is a good place to look!). Assuming a real interest rate of 5% and a real
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}