C ONLY

1. Debt dynamics. (a) In 2019, US GDP was approximately $21 trillion, the federal debt at the end of the year was $16.8 trillion, total federal government revenue was $3.5 trillion, total spending was $4.4 trillion and interest payments were $400 billion. Given these values, what were the debt-GDP ratio? the primary balance (surplus or deficit), as a percent of GDP? the effective interest rate on government debt? (b) In the absence of the pandemic, we might have expected nominal GDP growth in 2020 to be around 4 percent. Suppose that had happened, and the primary balance and effective interest rate had remained at the levels you calculated in the previous question. What would the debt-GDP ratio have been at the end of 2020? (c) Suppose this level of nominal growth, primary balance and effective interest rate remained stable for many years. Would the debt-GDP ratio rise without limit, or would it eventually stabilize? If the latter, what value would it stabilize at? (a) Now suppose that the effective interest rate on government debt were 5 percent, instead of the number you calculated. What would your answer to the previous question be in that case