Unlike households, governments are often able to sustain large debts. For example, in 2011, the U.S. government's total debt reached $\$ 14.8$ trillion, approximately equal to $102.7 \%$ of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was $2.2 \%$. However, running budget deficits becomes hard when very large debts are outstanding.

a. Calculate the dollar cost of the annual interest on the government's total debt assuming the interest rate and debt figures cited above.

b. If the government operates on a balanced budget before interest payments are taken into account, at what rate must GDP grow in order for the debt-GDP ratio to remain unchanged?

c. Calculate the total increase in national debt if the government incurs a deficit of $\$ 600$ billion in 2012 .

d. At what rate would GDP have to grow in order for the debt-GDP ratio to remain unchanged when the deficit in 2012 is $\$ 600$ billion?

e. Why is the debt-GDP ratio the preferred measure of a country's debt rather than the dollar value of the debt? Why is it important for a government to keep this number under control?

The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to help the economy move to potential output, $Y_F$

Is Albernia facing a recessionary or inflationary gap?

Aggregate demand would increase as a result of a. an increase in aggregate supply. b. a decrease in household wealth. c. an increase in consumer confidence. d. a widespread fear of an impending recession.

There were two major shocks to the U.S. economy in 2007 , leading to a severe economic slowdown. One shock was related to oil prices, the other was the slump in the housing marker. This question analyzes the effect of these two shocks on GDP using the A D-A S framework.

Draw typical aggregate demand and short-run aggregate supply curves. Label the horizontal axis "Real GDP" and the vertical axis "Aggregate price level." Label the equilibrium point $E_1$, the equilibrium quantity $Y_1$, and equilibrium price $P_1$.

In Wageland, all workers sign an annual wage contract each year on January 1. In late January, a new computer operating system is introduced that increases labor productivity dramatically. Explain how Wageland will move from one short-run macroeconomic equilibrium to another. Illustrate with a diagram.

Explain whether the following government policies affect the aggregate demand curve or the short-run aggregate supply curve and how.

The government reduces the minimum nominal wage.

Your study companion contends that the distinction between consumer savings and wealth and the government's budget deficit and debt are analogous. He further contends that if you have a high debt, you must also have a large budget deficit. What aspects of your study partner is he right about, and what aspects is he wrong about?

How did or would the following affect the United States' current public debt and implicit liabilities? a. In 2003, Congress passed and President Bush signed the Medicare Modernization Act, which includes a prescription drug benefit for seniors and people with disabilities. Some of the benefits provided by this law went into effect immediately, while others will take effect later. b. The retirement age for receiving full Social Security benefits is raised to 70 for future retirees. c. Future retiree Social Security benefits are restricted to those with low incomes. d. Because the cost of health care is increasing faster than the overall inflation rate, annual increases in Social Security benefits are increased by the annual increase in health care costs rather than the overall inflation rate.

The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2010,2011 , and 2012 .

a. What is the percent change in production of each of the goods from 2010 to 2011 and from 2011 to 2012?

b. What is the percent change in prices of each of the goods from 2010 to 2011 and from 2011 to 2012?

c. Calculate nominal GDP in Britannica for each of the three years. What is the percent change in nominal GDP from 2010 to 2011 and from 2011 to 2012?

d. Calculate real GDP in Britannica using 2010 prices for each of the three years. What is the percent change in real GDP from 2010 to 2011 and from 2011 to 2012 ?

Which of the following situations imply possible issues for the economy: the magnitude of the government's debt and the size of the budget deficit? a. Although the government has a small amount of debt, it is now running a significant budget deficit as it constructs a high-speed rail network to link the country's major cities. b. The government is currently only operating a tiny budget deficit despite having a relatively high level of debt from a recently ended war that was funded by deficit spending. c. Although the government has a little amount of debt, it is nevertheless running a budget deficit to pay the interest on the loan.

In a marketing survey, a random sample of 730 women shoppers revealed that 628 remained loyal to their favorite supermarket during the past year-i.e., did not switch stores. Let p represent the proportion of all women shoppers who remain loyal to their favorite supermarket. Find a point estimate for p.

In 2012, the policy makers of the economy of Eastlandia projected the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenarios for growth in the government's deficit. Real GDP is currently $\$ 1,000$ billion per year and is expected to grow by $3 \%$ per year, the public debt is $\$ 300$ billion at the beginning of the year, and the deficit is $\$ 30$ billion in 2012 .

a. Complete the accompanying table to show the debtGDP ratio and the ratio of the budget deficit to GDP for the economy if the government's budget deficit remains constant at $\$ 30$ billion over the next 10 years. (Remember that the government's debt will grow by the previous year's deficit.)

b. Redo the table to show the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy if the government's budget deficit grows by $3 \%$ per year over the next 10 years.

c. Redo the table again to show the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy if the government's budget deficit grows by $20 \%$ per year over the next 10 years.

d. What happens to the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy over time under the three different scenarios?

You serve as a candidate for national office's economic advisor. She requests an overview of the financial effects of a balanced budget requirement for the federal government, as well as your advice on whether she ought to support such a requirement. What is your reaction?

Earlier mentioned figure shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in the United States from 1970 to 2010. Assuming that potential output was unchanged, use this figure to determine which of the years from 1990 to 2009 the government used expansionary fiscal policy and in which years it used contractionary fiscal policy.