1. How do economists distinguish between the absolute and relative sizes of the public debt? Why is the distinction important? Distinguish between refinancing the debt and retiring the debt. How does an internally held public debt differ from an externally held public debt? Contrast the effects of retiring an internally held debt and retiring an externally held debt. (50%)2. Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 1, a budget deficit of $20 billion in year 2, a budget surplus of $10 billion in year 3, and a budget deficit of $2 billion in year 4. What is the absolute size of its public debt in year 4? 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? Show your answers. (25%)3. Some politicians have suggested that the United States enact a constitutional amendment requiring that the Federal government balance its budget annually. Explain why such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy whenever the economy experienced a severe recession. (25%)
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Assignment#4
BA207
Name_______________________________________________________________________
Instruction: Please answer each questions with sufficient detail. Relevant detailed responses
are highly rewarded. If you consult any sources, then you should provide both in-text
citations and reference at the end for each responses. You need to make sure at least
consult your textbook for your responses.
1. How do economists distinguish between the absolute and relative sizes of the public
debt? Why is the distinction important? Distinguish between refinancing the debt and
retiring the debt. How does an internally held public debt differ from an externally held
public debt? Contrast the effects of retiring an internally held debt and retiring an
externally held debt. (50%)
2. Suppose that a country has no public debt in year 1 but experiences a budget deficit of
$40 billion in year 1, a budget deficit of $20 billion in year 2, a budget surplus of $10
billion in year 3, and a budget deficit of $2 billion in year 4. What is the absolute size of
its public debt in year 4? 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? Show your answers. (25%)
3. Some politicians have suggested that the United States enact a constitutional amendment
requiring that the Federal government balance its budget annually. Explain why such an
amendment, if strictly enforced, would force the government to enact a contractionary
fiscal policy whenever the economy experienced a severe recession. (25%)

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