The government of Happyland collects $100 million in taxes each year and currently has a public debt of $1.2 billion, which it finances by issuing Treasury bonds that pay 8% per year. Is this a manageable level of debt for the government of Happyland

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Question:

The government of Happyland collects $100 million in taxes each year and currently has a public debt of $1.2 billion, which it finances by issuing Treasury bonds that pay 8% per year. Is this a manageable level of debt for the government of Happyland

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Answer:No, the debt is not manageable because interest payments equal $96 million per year.Explanation:Annual interest payment for debt = 0.08*1.2B = $96 million Only the interest payment is about 96% of government revenue, so its not manageable.

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