Purchase Solution

Measuring Inflation - Balanced Budget

Not what you're looking for?

Ask Custom Question

Guatemala government has an outstanding debt of $18.23 billion and its GDP is 30% higher than the debt.  The nominal interest rate is 5%.  The inflation rate is 2%.  
a. What   is   the   sustainable   deficit   ratio   if   the   country   is   growing   at   5%?   How  about  when inflation goes to â?2%?  

b.What  about  if  the  country  grows  at  2%?  How  about  when  inflation  goes  to  â?7%?  

c. Is Guatemala's debt sustainable if the government runs a balanced budget in both a and b.

Purchase this Solution
Solution Summary

Guatemala's debt and calculation of sustainable deficit levels.

Solution Preview

For these problems we can use the government budget equation, bt = d + (1+i )/ (1+n) bt-1, where b is the ratio of debt to GDP, d is the ratio of deficit to GDP, i is the nominal interest rate and n is the growth rate of GDP. bt is the debt ratio for the current period, and bt-1 is for the prior period. At the steady state value of b, we find that bt = bt-1 (debt is not changing).

Solving for steady-state value of b an inserting ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Balancing the Fed Budget

    This will further exacerbate the inflation situation by increasing aggregate demand. The solution answers what problems might arise with an annually balanced budget.

  • Measuring organization's performance

    528021 Measuring organization's performance Identify which tools would be most effective in measuring an organization's performance against the determined standards such as dashboards, balanced scorecard, budget, and benchmarking.

  • fiscal policy

    This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.

  • Deficits and Surpluses

    Similarly, inconsistent accounting practices—such as measuring an income flow sometimes one way and sometimes another—are wrong. Standard accounting practices rule out a number of "creative" but improper approaches to measuring deficits.

  • Problems with measuring cost

    488913 Problems with Measuring Cost What types of problems may arise when measuring cost for short-run cost estimation? Why are they considered problems and what are possible resolutions?

  • Should the U.S. federal budget be balanced every year

    45998 Should the U.S. federal budget be balanced every year Should the U.S. federal budget be balanced every year? Wouldn't this depend on the economy? Hi there, You have asked a rather complex question.

  • Measuring Human Resource Management Effectiveness

    Measuring HR Effectiveness. Web: http://www.citeman.com/7814-measuring-hr-effectiveness.html . Accessed February 24, 2012. The Balanced Scorecard (2010). Benefits from using the Balanced Scorecard.

  • Balanced Scorecard Approach & IS Performance

    500039 Balanced Scorecard Approach & IS Performance What is a balanced scorecard approach, and why might it be useful for measuring overall IS performance? Please list references.

  • classical, economist

    The roles of government are to ensure the free workings of markets, using supply-side policies and to ensure a balanced budget.

View More Related Solutions