1. The new level of gross national debt is $2.5 trillion (the initial amount) + $100 billion (the deficit) = $2.6 trillion.
2. If 100 percent of the deficit is financed by the sales of securities to the public, the level of debt held by the public increases by $100 billion. The gross debt also increases, but it already increased in question 1. So, the level of debt held by the public becomes $100 billion higher, and the level of gross debt remains at $2.6 trillion.
3. Assuming the initial GDP was $10 trillion (just an example, the question did not provide the initial GDP):
- Gross debt as a percentage of GDP is (($10 trillion * 1.06) / $2.6 trillion) * 100.
- Debt held by the public as a percentage of GDP is (($10 trillion * 1.06) / $100 billion) * 100.
Calculating the above expressions:
- Gross debt as a percentage of GDP is 25.96%.
- Debt held by the public as a percentage of GDP is 6.60%.
Note that these values might be different if the given initial GDP was different. The formulas remain the same.
The gross national debt initially is equal to $2.5 trillion and the federal government then runs a defict of $100 billion:
1. What is the new level of gross national debt?
2. If 100 percent of this deficit is financed by the sales of securities to the public, what happens to the level of debt held by the public? What happens to the the level of gross debt?
3. If GDP increases by 6 percent in the same year as the deficit is run, what happens to gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?
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