Tutorial 9
Question 1
Indicate whether the following statements are true or false. If false, supply the true
statement:
1. The budget deficit equals the sum of spending, interest payments on the debt
and taxes net of transfers.
2. Government spending on goods and services includes transfer payments.
3. The primary surplus is defined as Gt - Tt.
4. To repay the debt fully by year 2, the government must run a primary surplus
equal to (1 + r). In order to achieve this, government must decrease in taxes.
Question 2
Using algebra, illustrate the phenomenon of debt stabilization.
Question 3
Discuss the Ricardian equivalence proposition.
Question 4
Explain how the burden of war can be passed on to future generations.
Question 5
Discuss an alternate way that government can finance itself aside from selling
bonds.