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Unformatted text preview: Chapter 27 17. (The National Debt) Try the following exercises to better understand how the national debt is related to the government's budget deficit. a. Assume that the gross national debt initially is equal to $3 trillion and the federal government then runs a deficit of $300 billion: i. What is the new level of gross national debt? When the deficit budget reaches $300 billion, the new gross national debt is $3003 billion ii. If 100 percent of the deficit is financed by the sale of securities to federal agencies, what happens to the amount of debt held by the public? What happens to the level of gross debt? The amount of debt held by the public and the gross national debt will be the same as the initial level. iii. If GDP increased by 5 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP? The gross national debt would reduce by 5%, the amount of public debt would also reduce by that same 5%...
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