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. Instructions: Enter your answers as whole numbers. For the absolute size of its public debt, enter your answer as a positive number. a. What is the absolute size of its public debt in year 4? b. If its real GDP in year 4 is $104 billion, what is this country’s public debt as a percentage of real GDP in year 4?

a. $32 billion

b. 30.77%

Explanation:

a. The absolute size of its public debt in year 4 is shown below:

= Budget deficit in year 2 - budget surplus in year 3 + budget deficit in year 4

= $40 billion - $10 billion + 2 billion

= $32 billion

b, And,  public debt as a percentage of real GDP in year 4 is

= Public debt ÷ Real GDP in year 4

= $32 billion ÷ $104 billion

= 30.77%

We simply applied the above formula so that the both answers could come

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