Solution-Government budget deficit or surplus

Government budget deficit or surplus

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Reference no: EM131220144

Suppose the government of Congo spends money on only education, and gets revenue through property taxes. In 2015, the government spent $120 on education and collected $100 in property taxes. The annual interest rate is 10%. Congo currently has total debt of $10.

Policy-makers suggest that the government budget deficit of Congo is too big, so the government suggests the following policy: Freeze spending on education over the next four years, and increase taxes by $10 each year for the next four years (so taxes will be $110 in 2016, $120 in 2017, etc).

(a) What is the government's budget deficit or surplus in 2015? What is its proposed deficit or surplus in each of the years 2016-2019? (Don't do any discounting for this question).

(b) What is the present value of revenues from 2015-2019 in 2015 dollars? What is the present value of expenses from 2015-2019 in 2015 dollars?

Reference no: EM131220144

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Government budget deficit or surplus

Reference no: EM131220144

Reference no: EM131220144

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