The table below shows government purchases G), net tax revenues T), and debt-service payments iD) over a 4-year period for a hypothetical economy. All figures are in billions of dollars. Assume the stock of debt at the end of 2012 is $500 billion. TABLE 31-1
-Consider two economies, A and B. Economy A has a stock of government debt equal to $800 billion and a
Debt-to-GDP ratio of 10%. Economy B has a stock of government debt equal to $22 billion and a debt -to-GDP ratio of 80%. What is the GDP for each economy?

Question

The table below shows government purchases G), net tax revenues T), and debt-service payments iD) over a 4-year period for a hypothetical economy. All figures are in billions of dollars. Assume the stock of debt at the end of 2012 is $500 billion.  TABLE 31-1
-Consider two economies, A and B. Economy A has a stock of government debt equal to $800 billion and a
Debt-to-GDP ratio of 10%. Economy B has a stock of government debt equal to $22 billion and a debt -to-GDP ratio of 80%. What is the GDP for each economy?

Quizplus · Accepted Answer

For economy A, Debt-to-GDP ratio = 10% implies the debt is 10% of GDP. Therefore, GDP = debt / (debt-to-GDP ratio) = $800 billion / 0.10 = $8 trillion.
For economy B, Debt-to-GDP ratio = 80% implies the debt is 80% of GDP. Therefore, GDP = debt / (debt-to-GDP ratio) = $22 billion / 0.80 = $27.5 billion.

The Table Below Shows Government Purchases G), Net Tax Revenues