Question

Inflation is 20 percent. Debt is $2 trillion. The nominal deficit is $300 billion. What is the real deficit or surplus

Answer 1

Answer:

Real deficit is -$100 billion.

Explanation:

Since we have a nominal deficit in the question, what we are to calculate is the real deficit.

The real deficit can be described as the actual or nominal deficit that has been adjusted for the effect of inflation on the debt. Therefore, the real deficit can be calculated using the following formula:

Real deficit  = Nominal deficit - (Debt * Inflation rate) ................. (1)

From the question, we have:

Inflation rate = 20%

Debt = $2 trillion = $2,000,000,000,000

Nominal deficit = $300 billion = $300,000,000,000

Substituting the values into equation (1), we have:

Real deficit = $300,000,000,000 - ($2,000,000,000,000 * 20%)

Real deficit = $300,000,000,000 - $400,000,000,000 = -$100,000,000,000 = -$100 billion

Therefore, real deficit is -$100 billion.