You are appointed secretary of the treasury of Redana, a newly independent country. Its currency is the

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You are appointed secretary of the treasury of Redana, a newly independent country. Its currency is the oban. The new nation began fiscal operations this year, and as of now has no debt. The king wishes to build up an army in case they have to go to war and wishes to spend on the military. The treasury will spend 500,000 obans and taxes will be 400,000 obans. The 100,000-oban difference will be borrowed from the public by selling 50,000 obans’ worth of 1-year bonds paying 2 percent interest. Similarly, the other 50,000 obans will be raised by selling 5-year bonds paying 6 percent interest. The king believes that using the army one year from now will increase taxes by 100,000 obans, balancing the budget. Assuming zero inflation, what will the size of the budget be after five years?

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Principles Of Macroeconomics

ISBN: 9781292303826

13th Global Edition

Authors: Karl E. Case,Ray C. Fair , Sharon E. Oster

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