Question

The government of Happyland collects $100 million in taxes each year and currently has a public debt of $1.2 billion, which it finances by issuing Treasury bonds that pay 8% per year. Is this a manageable level of debt for the government of Happyland

Answer 1

Answer:

No, the debt is not manageable because interest payments equal $96 million per year.

Explanation:

Annual interest payment for debt = 0.08*1.2B = $96 million

Only the interest payment is about 96% of government revenue, so its not manageable.