The Impact of Strong Economic Growth In 2011, the Congressional Budget Office
predicted that the US economy would grow by \(2.8 \%\) per year on average over
the decade from 2011 to 2021 . At this rate, in 2021 , the ratio of national
debt to GDP (gross domestic product) is predicted to be \(76 \%\) and the
federal deficit is predicted to be \(\$ 861\) billion. Both predictions depend
heavily on the growth rate. If the growth rate is \(3.3 \%\) over the same
decade, for example, the predicted 2021 debt-to-GDP ratio is \(66 \%\) and the
predicted 2021 deficit is \(\$ 521\) billion. If the growth rate is even
stronger, at \(3.9 \%,\) the predicted 2021 debt-to-GDP ratio is \(55 \%\) and the
predicted 2021 deficit is \(\$ 113\) billion. \(^{79}\) (a) There are only three
individual cases given (for three different economic scenarios), and for each
we are given values of three variables. What are the variables?
(b) Use technology and the three cases given to find the regression line for
predicting 2021 debt-toGDP ratio from the average growth rate over the decade
2011 to 2021 .
(c) Interpret the slope and intercept of the line from part (b) in context.
(d) What 2021 debt-to-GDP ratio does the model in part (b) predict if growth
is \(2 \% ?\) If it is \(4 \%\) ?
(e) Studies indicate that a country's economic growth slows if the debt-to-GDP
ratio hits \(90 \%\). Using the model from part (b), at what growth rate would
we expect the ratio in the US to hit \(90 \%\) in \(2021 ?\) (f) Use technology
and the three cases given to find the regression line for predicting the
deficit (in billions of dollars) in 2021 from the average growth rate over the
decade 2011 to 2021 .
(g) Interpret the slope and intercept of the line from part (f) in context.
(h) What 2021 deficit does the model in part (f) predict if growth is \(2 \% ?\)
If it is \(4 \% ?\)
(i) The deficit in 2011 was \(\$ 1.4\) trillion. What growth rate would leave
the deficit at this level in \(2021 ?\)