Fiscal deficit was 4% of the GDP in 2015 and that increased to 5% in 2016. If the GDP increased by 10% from 2015 to 2016, the percentage increase in the actual fiscal deficit is?
Understand the Problem
The question is asking to calculate the percentage increase in the fiscal deficit from 2015 to 2016, given that it was 4% of GDP in 2015, increased to 5% in 2016, and the GDP itself increased by 10%. To solve this, we will first calculate the fiscal deficits for both years based on a hypothetical GDP value, then determine the actual values and compute the percentage increase.
Answer
The percentage increase in the actual fiscal deficit is $37.5\%$.
Answer for screen readers
The percentage increase in the actual fiscal deficit is $37.5%$.
Steps to Solve
-
Define a Hypothetical GDP Assume a GDP value for 2015. Let's use $GDP_{2015} = 100$.
-
Calculate Fiscal Deficit for 2015 The fiscal deficit in 2015 can be calculated as: $$ Fiscal\ Deficit_{2015} = 4% \ of\ GDP_{2015} = 0.04 \times 100 = 4 $$
-
Calculate GDP for 2016 Since the GDP increased by 10% from 2015 to 2016, we calculate: $$ GDP_{2016} = GDP_{2015} + 10% \ of\ GDP_{2015} = 100 + 0.10 \times 100 = 110 $$
-
Calculate Fiscal Deficit for 2016 The fiscal deficit in 2016 is: $$ Fiscal\ Deficit_{2016} = 5% \ of\ GDP_{2016} = 0.05 \times 110 = 5.5 $$
-
Calculate the Actual Increase in Fiscal Deficit Now, determine the increase in the fiscal deficit from 2015 to 2016: $$ Increase\ in\ Fiscal\ Deficit = Fiscal\ Deficit_{2016} - Fiscal\ Deficit_{2015} = 5.5 - 4 = 1.5 $$
-
Calculate the Percentage Increase in Fiscal Deficit Finally, calculate the percentage increase: $$ Percentage\ Increase = \left( \frac{Increase\ in\ Fiscal\ Deficit}{Fiscal\ Deficit_{2015}} \right) \times 100 = \left( \frac{1.5}{4} \right) \times 100 = 37.5 $$
The percentage increase in the actual fiscal deficit is $37.5%$.
More Information
The increase in the fiscal deficit from 4% to 5% may seem small, but when you consider the context of the GDP increase, it results in a significant monetary increase.
Tips
- Neglecting the GDP Increase: Failing to account for the increasing GDP when calculating the fiscal deficit for 2016 can lead to incorrect results. Always ensure you calculate the new GDP before finding the new fiscal deficit.
AI-generated content may contain errors. Please verify critical information
