The question is incomplete. Here is the complete question
Calculate the real deficit or surplus in the following cases:
a. Inflation is 10 percent. Debt is $3 trillion. Nominal deficit is $220 billion.
b. Inflation is 2 percent. Debt is $1 trillion. Nominal deficit is $50 billion.
c. Inflation is –4 percent. (Price levels are falling.) Debt is $500 billion. Nominal deficit is $30 billion.
d. Inflation is 3 percent. Debt is $2 trillion. Nominal surplus is $100 billion.
Answer:
(A) $80 billion surplus
(B) $30 billion deficit
(C) $50 billion deficit
(D) $160 billion surplus
Explanation:
(A) The inflation is 10%
= 10/100
= 0.1
Nominal deficit is $220 billion
Debt is $3 trillion
Therefore the real deficit can be calculated as follows
= Nominal deficit-(inflation × debt)
= $220 billion-(0.1×$3 trillion)
= $220 billion-$300 billion
= -$80 billion
= $80 billion surplus
(B) The inflation rate is 2%
= 2/100
= 0.02
The nominal deficit is $50 billion
The debt is $1 trillion
Therefore the real deficit can be calculated as follows
= $50 billion-(0.02×$1 trillion)
= $50 billion - $20 billion
= $30 billion deficit
(C) The inflation rate is 4%
= 4/100
= 0.04
The nominal deficit is $30 billion
The debt is $500 billion
Therefore the real deficit can be calculated as follows
= $30 billion-(-0.04×$500 billion)
=$30 billion-(-$20 billion)
= $30 billion + $20 billion
= $50 billion deficit
(D) The inflation rate is 3%
=3/100
= 0.03
The nominal deficit is $100 billion surplus
The debt is $2 trillion
Therefore the real deficit can be calculated as follows
= $100 billion + (0.03×$2 trillion)
= $100 billion + $60 billion
= $160 billion surplus
