Calculate how much total spending as a percentage of GDP has increased since the 1960s. In the 1960s (due largely to spending for the war in Vietnam) defense spending was the single largest component of total outlays. What has been the largest component since then? What types of outlays does the table suggest are responsible for growth in total spending since the 1960s? If the growth rate of output averaged roughly 4 percent a year and the growth rate of the national debt averaged 5 percent, what would happen to the ratio of debt to GDP over time? Why?

MACROECONOMICS

Show how the U.S. government’s spending has changed over the last several decades.

a. Calculate how much total spending as a percentage of GDP has increased since the 1960s.

b. In the 1960s (due largely to spending for the war in Vietnam) defense spending was the single largest component of total outlays. What has been the largest component since then?

c. What types of outlays does the table suggest are responsible for growth in total spending since the 1960s?

2. If the growth rate of output averaged roughly 4 percent a year and the growth rate of the national debt averaged 5 percent, what would happen to the ratio of debt to GDP over time? Why?

DEBT %A = %ADEBT — %Y

a. Go to http://treastirydirect.govhzovt/reports/pd/histdebt/histdebt.hun and retrieve data for the U.S. debt from 1950-2015.

b. Go to http://fred.stlotiMettor. and click on “Categories,” under “National Income & Product Accounts” select “GDP/GNP.” Find and download data for annual GDP.

c, Calculate the debt-to-GDP ratio (you will need to convert U.S. debt units into billions of dollars).

d. Calculate the percent change in the debt-to-GDP ratio directly using the formula %ADEBT, = (DEW; DEBT,_,)IDEBT,_

e. Now calculate the percent change in the debt-to-GDP ratio using equation (3).

F. What is the average difference in the %ADEBT calculated through these two methods? Do they seem equivalent?

2. In this problem we compare debt and the debt-to-GDP ratio.

a. Using the data from the previous question, graph debt (in billions of dollars) and GDP over the period 1950-2012.

b. Now create a separate graph showing the debt-to-GDP ratio over this same period.

c. Comment on the differences between these two graphs. Why is it advantageous to look at debt as a ratio rather than in levels?