Calculate the real deficit or surplus in the following cases: a. Inflation is 16

Question

Calculate the real deficit or surplus in the following cases:
  
a. Inflation is 16 percent. Debt is $6 trillion. Nominal deficit is $720 billion.
  
    Instructions: Round your answer to the nearest whole dollar amount.
   
    $ _____ billion (surplus or deficit)
  
b. Inflation is 16 percent. Debt is $6 trillion. Nominal deficit is $1045 billion.
  
    Instructions: Round your answer to the nearest whole dollar amount.
   
    $ _____ billion (surplus or deficit)

c. Inflation is -10 percent. (Price levels are falling.) Debt is $550 billion. Nominal deficit is $90 billion.
  
    Instructions: Round your answer to the nearest whole dollar amount.
   
    $ _____ billion (surplus or deficit)

d. Inflation is 6 percent. Debt is $5 trillion. Nominal surplus is $300 billion.
  
    Instructions: Round your answer to the nearest whole dollar amount.
  
$ _____ billion (surplus or deficit)

Explanation / Answer

a.

nominal deficit-(inflation X total debt) = 720-(0.16*6000)=720-960=-240 billion, it is Real surplus as inflation as reduced debt in real value thus after adjustment, nominal deficit has turned to real surplus.

b.

nominal deficit-(inflation X total debt) = 1045-(0.16*6000)=1045-960=85billion, it is Real deficit as inflation could not offset the nominal deficit

c.

nominal deficit-(inflation X total debt) = 90-(-0.10*550)=90+55=145billion, it is Real deficit as deflation increased value of the debt in real terms thus increased the real deficit than the nominal deficit

d.

nominal deficit-(inflation X total debt) = -300-(0.06*5000)=-300-300=-600billion, it is Real surplus as inflation reduced debt burden in real value and increased the surplus in real cases

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