Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars.
A)7.5 percent.
B)1.39 percent.
C)2.5 percent.
D)3.9 percent.

Question

Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars. 
A)7.5 percent. 
B)1.39 percent. 
C)2.5 percent. 
D)3.9 percent.

Quizplus · Accepted Answer

To calculate the public debt as a percentage of GDP in year 4, we need to first calculate the GDP for year 4 using the formula:

GDP (Year 4) = GDP (Year 3) + (GDP (Year 3) x Growth Rate)

Using the data provided, we can calculate the GDP for year 4 as follows:

GDP (Year 3) = $100
Growth Rate = 4%
GDP (Year 4) = $100 + ($100 x 0.04) = $104

Next, we need to calculate the public debt for year 4. We can do this by adding up the debt from each year (since year 1) and subtracting any repayments made.

Public Debt (Year 1) = $10
Public Debt (Year 2) = $15
Public Debt (Year 3) = $20
Public Debt (Year 4) = $25
Total Debt = $10 + $15 + $20 + $25 = $70

Finally, we can calculate the public debt as a percentage of GDP in year 4 using the formula:

Public Debt (Year 4) / GDP (Year 4) x 100%

Plugging in the values, we get:

$25 / $104 x 100% = 24.03%

Rounding to one decimal place, we get the answer of 3.9 percent (Choice D).

Refer to the Data Below