Answer the Question Using the Following Budget Information for a Hypothetical

question 26

Multiple Choice

Answer the question using the following budget information for a hypothetical economy.Assume that all budget surpluses are used to pay down the public debt. $\begin{array}{c}\begin{array}{lll}\\\\\text {Year 1}\\\text {Year 2}\\\text {Year 3}\\\text {Year 4}\\\text {Year 5}\\\text {Year 6}\end{array}\begin{array}{c}\text {Government}\\\underline{\text {Spending}}\\ \$ 450 \\500\\600\\640\\680\\600\end{array}\begin{array}{c}\\\underline{\text {Tax Revenues}}\\\$ 425 \\450 \\500 \\620 \\580 \\620\end{array}\begin{array}{c}\\\underline{\text { GDP }} \\ \$ 2,000 \\3,000 \\4,000 \\5,000 \\4,800 \\5,000\end{array}\end{array}$
Refer to the data.As a percentage of GDP,the:

• A) budget deficit was 3.9 percent in year 4.
• B) budget surplus was less than 1 percent in year 6.
• C) public debt was 3 percent in year 6.
• D) public debt was 12.5 percent in year 1.

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Definitions:

Natural Log

A logarithm to the base e, where e is an irrational and transcendental constant approximately equal to 2.71828.

Expected Value

A calculated average of all possible values for a random variable, weighted by their respective probabilities.

Probability

A measure of the likelihood that an event will occur, expressed as a number between 0 (impossible) and 1 (certain).

Risk Averse

A description of an individual or entity's preference to avoid uncertainty, often choosing options with more predictable outcomes.