Question

The tables show the spending and revenue for Littleland in 2010. Use the tables and other information to answer the questions. Spending category Value (millions) education $320 welfare and Social Security $890 health care $270 defense $120 payments on debt $170* other $240 *This payment covers total interest owed only. Revenue category Value (millions) income tax $800 sales tax $270 corporate tax $300 social insurance $340 GDP in 2010: $7.3 billion Total debt as of 2009: $3.5 billion How much money (in millions) did Littleland need to borrow in 2010 to finance its government spending? $ million At the end of 2010, what was Littleland's debt to GDP ratio? Give your answer to the nearest whole percentage point. %

Answer 1

Answer: (a) $300 million

(b) 52%

Explanation:

Total Government spending in 2010:

= education + welfare and Social Security +  health care +  defense + payments on debt + other

= $320 + $890 + $270 + $120 + $170 + $240

= $2,010 million

Total Government revenue in 2010:

= income tax  + sales tax +  corporate tax + social insurance

= $800 + $270 + $300 + $340

= $1,710 million

Hence, Total government spending is greater than the total government revenue.

So,

Littleland need to borrow =  $2,010 million - $1,710 million

                                           = $300 million

Littleland need to borrow $300 million to finance its government spending.

Total government debt in 2010:

= Total government debt in 2009 + Increase in debt in 2010

= $3.5 billion + $300 million

= $3.5 billion + $0.3 billion

= $3.8 billion

Littleland's debt to GDP ratio At the end of 2010,

$=\frac{Debt\ at\ the\ end\ of\ 2010}{GDP\ in\ 2010}$

$=\frac{3.8 billion}{7.3 billion}$

      = 0.52

      = 52%