As stated in the chapter, the Congressional Budget Office (CBO) estimates that the federal budget deficit was $1,294 billion in 2010. For each of the interest rates given in problem 1.8, calculate the (hypothetical) primary budget deficit and the difference between the deficit and the primary budget deficit.
In problem 1.8 as stated in the chapter, gross federal debt at the end of the 2010 fiscal year was $13,562 billion. Currently, interest rates are very low, but historically, interest rates on Treasury bonds have been considerably higher. Assume, for simplicity, that the government pays the same interest rate on all outstanding debt. What is the approximate annual interest payment if the interest rate is:
a. 0.5%?
b. 3%?
c. 5%?