Calculate the primary deficit, Cost Accounting

Assume B, G and T are in real terms (and in billions of dollars).

Bt-1 = 1000      Gt= 220           Tt= 200            it = .15    πt = .10

a) Calculate the official measure of the deficit in year t.

b) Calculate the correct (i.e. inflation adjusted) measure of deficit in year t.

c) Calculate the primary deficit in year t.

d) Discuss what happens to the primary deficit in year t if the nominal interest rate in year t increases to 17%.

e) To what extent does the official measure of the deficit overstate the correct measure?

f) Given the above information, what will happen to the level of debt between years t-1 and t? Explain


Posted Date: 3/5/2013 6:10:50 AM | Location : United States

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