Suppose an economy has a GDP of $40 billion and a national debt of $20 billion, and the average interest rate on this debt is currently 3%. Calculate the annual interest payments on the debt. What percentage of this economy’s GDP is spent on interest payments on its debt
Suppose an economy has a GDP of $40 billion and a national debt of $20 billion, and the average interest rate on this debt is currently 3%. Calculate the annual interest payments on the debt. What percentage of this economy’s GDP is spent on interest payments on its debt
Chapter17: Federal Deficits, Surpluses, And The National Debt
Section: Chapter Questions
Problem 7SQP
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Suppose an economy has a GDP of $40 billion and a national debt of $20 billion, and the average interest rate on this debt is currently 3%.
- Calculate the annual interest payments on the debt.
- What percentage of this economy’s GDP is spent on interest payments on its debt?
- Suppose that next year, one of two events occurs: (1) GDP and interest rates stay the same, but the economy adds $4 billion to its national debt, or (2) GDP and the national debt stay the same, but the average interest rate on the debt increases to 4%. Which of the two events will result in a larger portion of the economy’s GDP going toward interest payments on the national debt?
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