Handout 2: More on the National Debt Ratios, Percentages, and Percentage Change STAT 100 Spring 2016

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1 In Handout 1, we worked towards gaining a better understanding of large numbers (such as the size of our national debt). I believe that it is important for us to grasp the enormity of such figures so that we can be more engaged citizens in our society. To understand various arguments people make concerning the national debt, however, we need more than just a sense for how large it really is. Many arguments concerning the national debt involve calculating ratios, percentages, and tracking numbers over time. In both this handout and the next, we will examine some of these calculations in more detail so that when you encounter such arguments, you will do so as a more informed citizen. Definition: A ratio is one number expressed in relation to another number by division; i.e., a ratio is calculated by dividing one number by the other. Examples you might encounter when discussing the national debt: Debt/GDP (Debt-to-GDP ratio) Debt/Citizen Questions: 1. As of 9/30/15, the end of the federal government s fiscal year, our national debt was $18,150,604,277, According to the U.S. Census Bureau, the resident population of the United States on that date was estimated to be 322,128,984. Calculate the Debt/Citizen ratio for Debt/Citizen = $18,150,604,277, / 322,128,984 citizens = $56, per citizen 1

2 2. Write a sentence that explains what the value calculated in the previous question means in everyday language. For every American citizen, the United States has $56, in national debt. 3. In 2015, the Gross Domestic Product (GDP) for the U.S. was approximately $17,418,930,000,000. Calculate the Debt/GDP ratio for Debt/GDP = $18,150,604,277, / $17,418,930,000,000 = Write a sentence that explains what the value calculated in the previous question means in everyday language. For every $1.04 of the nation s debt, the nation has $1 in GDP. Or, for every $1 of the nation s GDP, there is $1.04 in national debt. 5. Complete the following table by calculating the appropriate ratios. Year National Debt U.S. Population U.S. GDP Debt/Citizen Debt/GDP 2015 $18,150,604,277, ,128,984 $17,418,930,000,000 $56, $7,932,709,661, ,297,982 $13,093,726,000,000 $26, $4,973,982,900, ,173,186 $7,664,060,000,000 $18, Why might it be a good idea to also consider the Debt/Citizen and Debt/GDP ratios when considering the national debt and making comparisons across time? Explain. These ratios allow us to take into account changes in the population and economy as we track the national debt over time. 2

3 Definition: A proportion is a special case of a ratio. When calculating a proportion, the denominator is some total and the numerator is a subpart of this total. To calculate a percentage, simply multiply the proportion by 0. Examples of percentages you might encounter when discussing how to reduce the budget deficit: The percentage of the national budget allocated to foreign aid The percentage of the national budget allocated to wasteful spending Questions: 1. To address our current budget deficit (which results from the United States government spending more than they bring in, subsequently adding to our existing national debt), many politicians and citizens suggest that we cut off all foreign aid. In 2016, the federal government has budgeted to spend about $3.8 trillion. Approximately $37.9 billion is allocated to foreign aid (if you include assistance to foreign militaries). What percentage of the federal budget is allocated to foreign aid? $37.9 $ =.01 = 1% 2. Do you feel that cutting off foreign aid is a feasible solution towards cutting the budget deficit? Why or why not? Answers will vary. One should recognize, however, since a very small percentage of the federal budget is set aside for foreign aid, making this change alone likely won t fix the problem. 3. An article titled Price of fixing, upgrading Obamacare website rises to $121 million written in the Washington Times cites that a contractor estimated the government would need to spend $121 million to fix the website after the original contractor was fired. Many citizens were upset, as they considered this wasteful spending. What percentage of the federal budget is $121 million? $121 $ = =.00318% (which is just over 3/00 of 1 percentage point) 3

4 4. If you had $1,000 and lost.003% of it, how much did you lose? Does this put the $121 million of wasteful spending mentioned above into a different perspective? Explain..003% of $00 = $00 = $.03 (which is 3 cents) Definition: One way to describe the change in a quantity over time is to calculate absolute change. To find this number, subtract the original quantity from the new quantity. Absolute Change = New value Original value To calculate the percentage change, first find the absolute change and then divide that number by the original amount. To convert your answer into a percentage, multiply by 0. New value - Original value Percentage Change = 0% Original value There s no doubt about it the national debt tends to be increasing each year. It is not very realistic to expect that we would ever have no national debt; however, most citizens agree that it would be nice to at least slow the rate at which the debt increases each year. Our final focus in this handout is on measuring the change in the national debt over time. Date National Debt (in dollars) 1/11/ ,852,358,798, /31/ ,356,140,493, /20/2009,626,877,048, /20/2001 5,727,776,738, Source: Questions: 1. Calculate the absolute change in the national debt from 1/20/2009 (Obama s first day in office) to 1/11/2016 (approximately present day). $18,852,358,798, $,626,877,048, = $8.2 trillion 4

5 2. Calculate the absolute change in the national debt from 1/20/2001 to 1/20/2009 (Bush s term in office). $,626,877,048, $5,727,776,738, = $4.9 trillion 3. Calculate the percentage change in the national debt from 1/20/2009 (Obama s first day in office) to present day. $18,852,358,798, $,626,877,048, =.77 = 77% increase $,626,877,048, Calculate the percentage change in the national debt from 1/20/2001 to 1/20/2009 (Bush s term in office). $,626,877,048, $5,727,776,738, $5,727,776,738, =.86 = 86% increase 5. A CBS News article from March of 2012 was titled National Debt has Increased More Under Obama than Bush. Here is a quote from this article: The National Debt has now increased more during President Obama's three years and two months in office than it did during 8 years of the George W. Bush presidency. The Debt rose $4.899 trillion during the two terms of the Bush presidency. It has now gone up $4.939 trillion since President Obama took office (note that this was written in March of 2012 it has now risen even more under Obama). Is the author referring to absolute change or percentage change? Is this article fair, in your opinion? Explain. The article is referring to absolute change. Answers regarding opinions will vary. 6. I believe that both the absolute change and the percentage change are important and should be reported together in a reputable news story. Read the following post on FactCheck.org Dueling Debt Deceptions ), which does discuss both. An excerpt from this article is shown below. 5

6 Verify the calculations behind the two values that are highlighted in this excerpt (use the data in the table from page 4, which was obtained from the debt to the penny website the article refers to. Show how the $4.7 trillion was calculated: $15,356,140,493, $,626,877,048, = $4.7 trillion Show how the 44.5 percent was calculated: $15,356,140,493, $,626,877,048,913.08,626,877,048, =.445 = 44.5% Final Thought: When you re presented with charts/figures/calculations from people trying to persuade you to believe something, keep in mind how important it is for you to be able to verify what they are saying! 6