Government borrows even more to pay interest payments

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When the government borrows even more to pay the interest payments, the government deficit at year t = G(t) - T(t) + iB(t-1), where G(t) is government spending at year t, T(t) is the tax revenues at year t, and B(t-1) is the amount of borrowing from the year (t-1), and i is the nominal interest rate. Now, instead of using the nominal interest rate, if we use the real interest rate, we can also calculate the real deficit. Suppose inflation rate is 6%, how much is the real deficit for the second year?

Reference no: EM131172413

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