A fictional government follows a fluctuating fiscal policy o…
A fictional government follows a fluctuating fiscal policy over a 25-year period. For the first 5 years, it runs an annual budget deficit of $10 billion, in other words, for each of those 5 years, . Over the next 10 years, its fiscal policy shifts to a surplus of $1 billion per year, i.e., for each of those 10 years. But there were two exceptions: during years 3 and 7 of the surplus period, the surplus is only $0.5 billion due to emergency spending. In the final 10 years, the government maintains a balanced budget, or , but in year 4 of this period, a one-time stimulus package creates a temporary deficit of $2 billion, which is offset in year 7 by an equal surplus of $2 billion. If we assume that the government started with zero debt, the total government debt at the end of the 25-year period was of , or .