What will be accumulated debt

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Reference no: EM1372409

Q. You are appointed secretary of treasury of a recently independent country called Rugaria. Currency of Rugaria is lav. new nation began fiscal operations this year and budget situation is that government will spend 10 million laves and taxes will be 9 million laves. 1-million-lav difference will be borrowed from public by selling 10 year government bonds paying 5 percent interest. Interest on outstanding bonds must be added to spending each year and we assume that additional taxes are raised to cover that interest. Assuming that budget stays same except for interest on debt for 10 years, what will be accumulated debt? What will size of budget be after 10 years?

Reference no: EM1372409

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