The following table contains approximate figures for gross domestic product (GDP

Question

The following table contains approximate figures for gross domestic product (GDP) and the national debt in the United States for June 2005 and June 2011. The national debt represents the total amount of money owed by the federal government to holders of U.S. securities. All numbers are in trillions of dollars.

Debt Held Outside Fed. Govt. and Fed. Reserve

Source: “U.S. Treasury, Bureau of Economic Analysis.”

Publicly held debt is the portion of the national debt that is held outside the federal government and the Federal Reserve System. In June 2005, the publicly held debt as a percentage of total national debt was (49%, 53.8%, 48.7%,49.5%).

In June 2005, the percentage of the U.S. national debt held by foreigners was (24.9%, 24.4%, 26.5%, 25.8%).

The fraction of the national debt held by foreigners will eventually need to be repaid to foreigners, thereby reducing the collective purchasing power of Americans. Between 2005 and 2011, the fraction of the national debt held by foreigners (decreased, increased).

The absolute level of the debt does not necessarily provide a clear indication of a nation's debt burden. Thus, economists often look at relative measures of the national debt. One possible relative measure of the national debt is the federal debt held by the public (outside the federal government and the Federal Reserve) as a percentage of GDP. In 2005, publicly held debt was (51.0%, 50.5%, 46.2%, 30.9%) of GDP. Between 2005 and 2011, publicly held debt as a percentage of GDP (Increased, Decreased).

GDP Total National Debt Debt Held by

Debt Held Outside Fed. Govt. and Fed. Reserve

(Trillions of Dollars) (Trillions of Dollars) Federal Government Foreign Ownership U.S. Ownership and Federal Reserve (Trillions of Dollars) (Trillions of Dollars) (Trillions of Dollars) June 2005 12.3 7.8 4.0 1.9 1.9 June 2011 15.2 14.3 4.6 4.5 5.2

Explanation / Answer

1. 48.7%

Publicly held debt = National debt that is held outside the federal government and the Federal Reserve System in June 2005 / Total National Debt = (Foreign Ownership + U.S Ownership)/ Total National Debt

= (1.9 + 1.9)/7.8 = 3.8/7.8 = 0.487 = 48.7%

2. 24.4%

In June 2005, the percentage of the U.S. national debt held by foreigners = 1.9/7.8 = 0.2435 = 24.4%

3. increased

In June 2005, the percentage of the U.S. national debt held by foreigners = 1.9/7.8 = 0.2435 = 24.4%

In June 2011, the percentage of the U.S. national debt held by foreigners = 4.5/14.3 = 0.31468 = 31.47%

Between 2005 and 2011, the fraction of the national debt held by foreigners increased by 7.07%.

4. In 2005, publicly held debt was 30.9% of GDP

Publicly held debt as a percentage of GDP in 2005 = (1.9 + 1.9)/12.3 = 0.3089 = 30.89% = 30.9%

5. Between 2005 and 2011, publicly held debt as a percentage of GDP increased from 30.9% to 63.8%.

Publicly held debt as a percentage of GDP in 2005 = (1.9 + 1.9)/12.3 = 0.3089 = 30.89% = 30.9%

Publicly held debt as a percentage of GDP in 2011 = (4.5 + 5.2)/15.2 = 0.638 = 63.8%

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