GENERAL ECONOMIC FIGURES National Debt Interest Rate Unemployment Personal Tax R

Question

GENERAL ECONOMIC FIGURES National Debt Interest Rate Unemployment Personal Tax Rate Growth Rate 1987 2350 0.072 0.07 0.12 0.03 1988 $2,609.87 0.072 0.07 0.12 0.03 GOVERNMENT EXPENDITURES Defense Spending Interest Spending Social Security& Medicare Welfare Health, Education, & Transportation Miscellaneous Expenditures Total Expenditures 286 $169.20 269 $119.00 90 70 $1,003.20 286 $187.91 270 $119.00 90 70 $1,022.91 GOVERNMENT REVENUES Personal Income Tax Employment Tax Corporate Income Tax Other Income Subtotal of Income Income with Growth Total Income $360.00 271 74 71 $776.00 $799.28 743.33 $360.00 271 74 71 $776.00 $799.28 $743.33 TOTALS Balance New Debt $259.87 $2,609.87 $279.58 $2,889.45

Explanation / Answer

Deficit arises when a government (or any institution for that matter), has expenditures more than their revenue. The additional expenditure then clearly has to be financed by taking debt. This debt will in turn increase any outstanding debt balance.

In this case as the government had an expenditure of $1003.2 and total revenue of just $743.33 for the year 1987, it is predicted to have a deficit of $259.87 ($1003.2 - 743.33). This additional amount has to be financed by taking new debt which will add up to the current debt. So, the resulting new debt going into 1988 would be $2609.87 ($2350+$259.87). This was adding up the national debt at start of 1987 and the new debt created in 1987 because of the deficit.

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