. The US Treasury received $1 trillion in tax payments. It spent $850 billion on
ID: 2806597 • Letter: #
Question
. The US Treasury received $1 trillion in tax payments. It spent $850 billion on “current” goods and services plus transfer payments and interest on existing bonds. It spent $200 billion on capital projects (such as highways and medical research). Which of the following is correct?
It has a surplus of $150 billion but must issue $50 billion in new bonds
It has a deficit of $50 billion and must issue $50 billion in new bonds
It has a deficit of $50 billion and must issue $150 billion in new bonds
It has a surplus of $150 billion and can pay off $150 billion in existing bonds
Explanation / Answer
Total amount received in Tax Payment - $1 trillion
Amount spent on "current" goods and services plus transfer payments and interest on existing bonds - $850 billion
Amount spent on capital projects - $200 billion
Total amount spent: $850 + $200 = $1050 billion
Total deficit: $1000 billion (tax payments) - $1050 billion (Total amount spent) = ($50 billion) Deficit
This deficit can be covered by issuing new bonds worth $50 billion.
Threfore: Answer is It has a deficit of $50 billion and must issue $50 billion in new bonds.
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