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Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4.
a. What is the absolute size of its public debt in year 4?

Answer :

Answer:

$32 billion

Explanation:

Data provided in the question:

Year              Budget deficit

 1                         0

 2                    $40 billion

 3                   -$10 billion      [negative sign depicts surplus]

 4                    $2 billion

Now,

The absolute size of its public debt in year 4

= $40 billion - $10 billion + $2 billion

= $32 billion

Hence,

The absolute size of its public debt in year 4 is $32 billion

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