In 2016 the national debt on Naboo was $\$ 100$ million. Naboo pays $4 \%$ annual interest on that debt, but debt payments were not included in the national budget. The table below shows the tax revenues, government spending, and transfer payments from 2017.
\begin{tabular}{lll}
Tax revenue & government spending & transfer payments \
\hline$\$ 300$ million & $\$ 250$ million & $\$ 50$ million
\end{tabular}

If Naboo's government does not want to add to its debt and have a balanced budget in 2017, which of the following actions will achieve those objectives?

Choose 1 answer:
(A) Increase government spending to at least $\$ 254$ million
(B) Reduce government spending to $\$ 246$ million or less
(C) Sell newly issued government bonds
(D) Increase tax revenue by $\$ 3$ million

Question

In 2016 the national debt on Naboo was $\$ 100$ million. Naboo pays $4 \%$ annual interest on that debt, but debt payments were not included in the national budget. The table below shows the tax revenues, government spending, and transfer payments from 2017.
\begin{tabular}{lll} 
Tax revenue & government spending & transfer payments \
\hline$\$ 300$ million & $\$ 250$ million & $\$ 50$ million
\end{tabular}

If Naboo's government does not want to add to its debt and have a balanced budget in 2017, which of the following actions will achieve those objectives?

Choose 1 answer:
(A) Increase government spending to at least $\$ 254$ million
(B) Reduce government spending to $\$ 246$ million or less
(C) Sell newly issued government bonds
(D) Increase tax revenue by $\$ 3$ million

Accepted Answer

∻Solution∻ ‖ a ⋮ Calculation of Interest Payment: The interest payment on the national debt is calculated as $4\%$ of $100$ million, which is $4$ million. ‖ ‖ b ⋮ Total Expenditures: The total expenditures include government spending and transfer payments, which sum to $250$ million + $50$ million = $300$ million. ‖ ‖ c ⋮ Total Revenue: The total tax revenue is $300$ million. ‖ ‖ d ⋮ Balancing the Budget: To balance the budget, the total expenditures (including interest payments) must equal the total revenue. Therefore, the total expenditures should be $300$ million (tax revenue) - $4$ million (interest payment) = $296$ million. ‖ ‖ e ⋮ Required Government Spending: To achieve a balanced budget, the government spending should be reduced to $296$ million - $50$ million (transfer payments) = $246$ million. ‖ ∻Answer∻ ⚹ (B) Reduce government spending to $246$ million or less ⚹ ∻Key Concept∻ ⚹ Balancing the Budget ⚹ ∻Explanation∻ ⚹ To balance the budget, the total expenditures (including interest payments) must equal the total revenue. By reducing government spending to $246$ million or less, the total expenditures will match the total revenue, achieving a balanced budget. ⚹◊What impact would increasing tax revenue by $3 million have on achieving a balanced budget in 2017 for Naboo's government according to Microeconomics principles?⍭ Generate me a similar question◊

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