Posted by **Doret** on Saturday, January 8, 2011 at 3:29pm.

Assume that the gross national debt initially is equal to $3 trillion and the federal government then runs a deficit of $300 billion.

i. What is the new level of gross national debt?

Gross national debt is the total amount outstanding in public and private debt in a country. The new level of the gross national debt would be ($3,300,000,000,000.) three trillion and three billion.

ii. If 100 percent of the deficit is financed agencies, what happens to the amount of debt held by the public? What happens to the level of gross debt?

iii. If GDP increased by 5 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?

Now suppose that the gross national debt initially is equal to $2.5 trillion and the Federal Government then runs a deficit of $100 billion:

I. What is the new level of gross national debt?

a. The total amount outstanding in public and private debt in a country. The new level of the gross national debt would be ($2,600,000,000,000.) two trillion and six billion.

II. If 100 percent of the deficit is financed agencies, what happens to the amount of debt held by the public? What happens to the level of gross debt?

III. If GDP increased by 5 percent in the same year that the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?

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