The national debt on $\mathrm{Naboo}$ is $\$ 100$ million, and the interest rate on that debt is $4 \%$. When preparing the national budget, the government of Naboo forgot to include any provisions for paying down the national debt or any interest payments.

If the government of Naboo wants to maintain a balanced budget and not add to the national debt, which of the following actions will be necessary?

Choose 1 answer:
(A) Decrease transfer payments by $\$ 1$ million and raise tax revenues by $\$ 2$ million
(B) Increase government spending by at least $\$ 4$ million
(c) Decrease government spending by at least $\$ 4$ million
(D) Increase transfer payments by at least $\$ 4$ million
(E) Increase tax revenues by $\$ 1$ million

Question

The national debt on $\mathrm{Naboo}$ is $\$ 100$ million, and the interest rate on that debt is $4 \%$. When preparing the national budget, the government of Naboo forgot to include any provisions for paying down the national debt or any interest payments.

If the government of Naboo wants to maintain a balanced budget and not add to the national debt, which of the following actions will be necessary?

Choose 1 answer:
(A) Decrease transfer payments by $\$ 1$ million and raise tax revenues by $\$ 2$ million
(B) Increase government spending by at least $\$ 4$ million
(c) Decrease government spending by at least $\$ 4$ million
(D) Increase transfer payments by at least $\$ 4$ million
(E) Increase tax revenues by $\$ 1$ million

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Calculate the annual interest payment on the national debt: $Interest = Principal imes Rate = \$100 ext{ million} imes 0.04$. ‖ ‖ step 2 ⋮ Simplify the calculation from step 1: $Interest = \$100 ext{ million} imes 0.04 = \$4 ext{ million}$. ‖ ‖ step 3 ⋮ Determine the necessary action to cover the interest payment without increasing the national debt: The government must either increase revenues or decrease spending by at least the amount of the interest payment to maintain a balanced budget. ‖ ∻Answer∻ ***C*** ∻Key Concept∻ ⚹Balanced Budget⚹ ∻Explanation∻ ⚹To maintain a balanced budget, the government must account for all expenditures, including interest payments on the national debt, without increasing the overall debt.⚹◊What is the formula to calculate the interest payment on the national debt of Naboo given a 4% interest rate?⍭ Generate me a similar question◊$

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