Greece is currently experiencing a financial crisis.
a. Research the financial crisis in Greece and summarize it in one-two
paragraphs.
b. You are in charge. By what percentage will you tell Greece to cut their
spending? What is the decay factor?
c. Write a function modeling this debt situation if the initial debt in 2009 was
$500 billion and using the decay factor found in (b). Let y be measured in
billions of dollar and x represent the number of years since 2009.
d. When will Greece be debt-free if you are in charge? Should you reconsider
your answer to (b)?

Answers are below

Step-by-step explanation:

A)  In 2009, Greece’s budget deficit exceeded 15 percent of its gross domestic product. Fear of default widened the 10-year bond spread and ultimately led to the collapse of Greece’s bond market. This would shut down Greece’s ability to finance further debt repayments. The chart below highlights in red the period when the 10-year government bond yield passed 35 percent until vast debt restructuring forced private bondholders to accept investment losses in exchange for less debt.

The austerity measures forced the government to cut spending and increase taxes. They cost 72 billion euros or 40 percent of GDP. As a result, the Greek economy shrank 25 percent. That reduced the tax revenues needed to repay the debt. Unemployment rose to 25 percent, while youth unemployment hit 50 percent. Rioting broke out in the streets. The political system was in upheaval as voters turned to anyone who promised a painless way out.

B)  I would tell Greece to cut their spending by 20 percent. The decay factor is 80 percent.

C)  Y = 500(1 - 0.20)x

D)  0.5 = 500(0.80)x

0.5 = (0.80)x

Log 0.5 = -0.30

Log 0.8 = -0.10

Divide Log 0.5 by Log 0.8

It equals 3

After 3 years, Greece will be debt free.