Answer:
a). Debt service payments=$21.6 billion
b). The nominal deficit=$6.6 billion
c). The government has a real budget surplus of $4.2 billion
Explanation:
a). Determine the debt service payments
The debt service payments can be expressed as;
Debt service payments=Nominal debt×interest rate
where;
nominal debt=$360 billion
interest rate=6%=6/100=0.06
replacing;
Debt service payments=360×0.06=$21.6 billion
Debt service payments=$21.6 billion
b). Determine the nominal deficit or surplus
The nominal deficit can be expressed as;
nominal deficit/surplus=Revenue-(Interest on debt+Government expenditures)
where;
Government expenditures=$145 billion
interest on debt=21.6 billion
revenues=$160 billion
replacing;
nominal deficit/surplus=160-(145+21.6)=160-166.6=-$6.6 billion
The nominal deficit=$6.6 billion
c). Determine the real deficit or surplus
The real deficit/surplus can be expressed as;
real deficit=(inflation×total nominal debt)-nominal deficit
where;
nominal deficit=$6.6 billion
inflation=3%=3/100=0.03
total nominal debt=$360 billion
replacing;
real deficit/surplus=(0.03×360)-6.6=10.8-6.6=$4.2 billion
The government has a real budget surplus of $4.2 billion
