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A heavily indebted government may end up in a vicious circle, where increasing debt leads to higher interest rates and lower growth, which increases debt even faster with subsequent even higher interest rates and lower growth etc.
a) Derive a formula showing how the change in the government debt ratio depends upon the primary deficit (relative to GDP), the earlier debt ratio, the real interest rate and the growth rate!
b) By how much will the government debt ratio increase in a given year if earlier debt is 100 per cent of GDP, the primary deficit 10 per cent of GDP, the real interest rate 2 per cent and the growth rate 1 per cent? What primary fiscal balance is required to stabilise debt?
c) By how much will the government debt ratio increase in a given year if earlier debt is 170 per cent of GDP, the primary deficit is 2 per cent of GDP, the real interest rate 10 per cent and the growth rate - 4 per cent? What primary fiscal balance is required to stabilise debt?
Many states offer drivers an opportunity to customize their license plates for the price of a small premium paid to each state; these plates are known as vanity plates. When vanity plates were originally introduced in Texas they could be acquired ..
Consider an individual with preferences over consumption c and leisure l given by: u(c,l) = [(c^(1-γ ))/(1-γ)] + al where γ > 0 and a > 0 are constants. She is endowed with h hours of time to divide between working at wage w and leisure. She has no..
Scientists at Los Alamos are price takers. They can sell patentable ideas for $1. Consider the production of patentable ideas. If the only input is labor (the scientists time), and the scientist could also be earning $10/hour in outside work.
Consider the following sets of investment projects: (n) 0 -4,000 -3,500 -5,000 -4,500 1 0 1,500 3,000 1,8002 0 1,800 2,000 1,800 3 5,500 2,100 1,000 1,800 Compute the equivalent annual worth of each project at 1 = 13%, and determine the acceptability..
Assume that an individual consumes two goods, X and Y. The total utility of each good is independent of the rate of consumption of the other good. The price of X and Y are $40 and $60 respectively. Use the following table of total u..
A firm produces two different goods, with demand given by the following Pa=100-2Qa-Qb and Pd=90-2Qb where Pa=price of good A Pb=price of good B, Qa=quantity of good A and Qb= quantity of good B there are 30 units of each in storage
What is the optimal price of the textbook from the author's point of view and by how much would the demand for the textbook change if advertising were increased by 2%?
the most efficient production technology available for making vitamin pills has the cost structure given in the following table. Note that output is measured as the number of bottles of vitamins produced per day and that costs include a normal pro..
Computer Products Corp. sells peripheral equipment used by both private businesses and the government. Due to a recession, Computer Product's sales have declined by 100,000 units and it now has 200,000 units of excess capacity.
Suppse a consumer utility derived from consuming banana is described by the function U=10X+3X^2-(1/3)X^3. Compute marginal utility. a. Make a table showing total and marginal utility for X from 0 to 7 units. b. Would this individual ever choose to c..
The private firm has a TEP level that is three times as high as the SOE: Ap = 3x As x the production functions are Yp=Ap x Np and Ys=As x Ns, where Np+Ns=1. The SOE employs three quarters of the work (Ns=3/4).
Draw two figures, one above the other. In the top figure, plot the total, variable, and fixed cost curves. In the bottom figure, show the average and marginal cost curves. Use Excel and plot for enough values of q between 0 and 20 such that the va..
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