Economics for Today 9th Edition by Irvin Tucker

Exercise 5

Suppose the federal government has no national debt and spends $100 billion, while raising only $50 billion in taxes.
a. What amount of government bonds will the U.S. Treasury issue to finance the deficit?
b. Next year, assume tax revenues remain at $50 billion. If the government pays a 10 percent rate of interest, add the debt-servicing interest payment to the government's $100 billion expenditure for goods and services the second year.
c. For the second year, compute the deficit, the amount of new debt issued, and the new national debt.