An economy has a debt of $50 billion at the beginning of the year. Tax revenues, net of transfers, are equal to $10 billion while spending is $15 billion. At the end of the year, the debt is $45 billion.

Question

Quizplus · Accepted Answer

The debt at the end of the year would increase, not decrease, because spending exceeds tax revenues. The correct end-of-year debt would be $55 billion ($50 billion initial debt + $5 billion deficit).

An Economy Has a Debt of $50 Billion at the Beginning