## Barro Mod 19 & 20 chapter 14 budget deficit practice exam questions

 Author Message NEAS Supreme Being Group: Administrators Posts: 4.3K, Visits: 1.3K Barro Mod 19 & 20 chapter 14 budget deficit practice exam questions(The attached PDF file has better formatting.) Real government savingsThe following are government accounts for year 20XX:●    Real taxes = 5,041●    Real transfers = 620●    Nominal value of government debt = 13,410●    Interest rate on government debt = 5%●    Other government spending = 5,497●    The price level = 150 (meaning 1.50)The price level is constant, the debt is held throughout the year, and the government prints no new money.Question 19.1: Interest expense on government debtWhat is the interest expense on the government debt in nominal value?Answer 19.1: Interest expense is the nominal value of the debt times the interest rate = 13,410 × 5% = 670.50Question 19.2: Real interest expense on government debtWhat is the interest expense on the government debt in real terms?Answer 19.2: Interest expense in real terms is the nominal value divided by the price level = 670.50 / 1.50 = 447.00.Question 19.3: Real government expendituresWhat are real government expenditures for the year?Answer 19.3: Real government expenditures are real transfers + real interest expense + other government spending = 620 + 5,497 + 447.00 = 6,564.00.Question 19.4: Real government savingsWhat are real government savings?Answer 19.4: Real government savings = real taxes – real government expenditures = 5,041 – 6,564 = (1,523) = –1,523.Government expenditures are more than taxes, so government savings are negative. Take heed: The solution to exam problems depends on the data given: Gt is government spending; (Gt + Vt + rt-1 × (Bgt-1/P) is real government expenditures. Real government savings = taxes – government expenditures =    taxes – [ government spending + transfers + interest on government debt ] =    Tt – [ (Gt + Vt + rt-1 × (Bgt-1 / P) ] Attachments Barro chapter 14 budget deficit practice exam questions.pdf (24 views, 36.00 KB)
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