1. What is the difference between government expenditures and government purchases? How do the two variables differ in terms of their effect on GDP?
2. Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion.
a. How much will its new national debt be?
b. Compute its debt-GDP ratio.
c. Suppose its GDP grows by 1% in the next year and the budget deficit is again $100 billion. Compute its new level of national debt and its new debt-GDP ratio.