14 -- Part 1: Deficit Spending and the Public Debt
Define the public debt and understand called the net public debt, has risen by more than alternative measures of the public debt, and as a percentage of U.S. GDP.
This is the baby's share of the debt.
You have been borrowing every year.
Know that you owe more than $55,000.
The U.S. government has spent more than it collects in taxes every year since 2001.
In this chapter, you will see that the answer is yes and no.
Let's look at what the government does when it spends more than it gets.
An excess of government spending is needed to finance the shortfall.
The U.S. Treasury sells IOUs on behalf of the U.S. government in the form of securities.
The federal government is asking Americans, businesses, and governments to lend money to cover its deficit.
If the federal government spends $1 trillion more than it gets in revenues, the Treasury will get $1 trillion by selling $1 trillion of new Treasury bonds.
The interest payments on the Treasury bonds will be paid over the life of the bond.
Immediate purchasing power is received by the U.S. Treasury.
It adds to its debt to bondholders.
You know about flows.
GDP is a flow because it is a dollar measure of the total amount of final goods and services produced within a given period of time.
The federal deficit is a flow.
The current federal deficit is about $1.5 trillion.
Governments don't always spend more money than they get.
You know that stocks are measured at a point in time.
An excess of government revenues is a stock.
It is the total number of people looking for work but unable to get a job because of government spending.
There was a net flow of 0.2 million individuals away from the state of being employed into the state of being out of work but looking for a job.
The federal government had a real GDP deficit of nearly $1.8 trillion in 2010.
On December 31, 2010, the measure about the activities of the Congressional of the public debt had increased to $9.3 trillion.
The Budget Office reports to the legislative branch of the U.S. government on the current state of the federal government's spending and receipts.
The federal government had four consecutive years of budget surpluses from 1998 to 2001.
Tax revenues have failed to keep up with the increase in government spending.
The federal government has a deficit.
The federal budget deficit has increased to levels not seen since World War II.
There is nothing out of the ordinary about federal budget deficits.
The budget surpluses of 1998 through 2001 were atypical.
The government had a budget surplus in 1968.
Since the 1950s, the U.S. government has not experienced back-to-back annual surpluses.
The U.S. government has had an annual budget for 13 years.
It has not been able to collect enough taxes and revenues to fund its spending.
The federal government borrows every year to finance its expenditures.
Federal budget deficits have been more common than federal budget surpluses.
Even though Figure 14-1 on the preceding page accounts for inflation, it does not give a clear picture of the size of the federal government's deficits or surpluses in relation to overall economic activity in the United States.
The federal budget deficit increased to 6 percent of GDP in the early 1980s.
It increased once again during the late 1980s and early 1990s, but then fell back into the budget surplus years of 1998-2001.
Since 2001, the government budget deficit has gone from being below 3 percent of GDP to nearly 13 percent of GDP.
The government has been spending more than it takes in.
Since the early 2000s, spending has increased at a faster pace than it has in any other decade since World War II.
The government revenues are also considered in the more complex answer.
In 2001, Congress and the executive branch reduced income tax rates, and in 2003 they did the same.
Government tax revenues were stagnant for a time because tax rates were reduced at the end of the recession.
When economic activity began to expand in the mid-2000s, tax revenues began to rise at a faster rate than government spending.
Economic activity fell in the late 2000s.
At the same time that federal expenditures increased, annual tax collections declined.
The U.S. government will operate with huge budget deficits as long as this situation persists.
GDP declined a bit.
The answers can be found on page 316.
GDP rose to around 6 percent in the early 1980s as the federal budget deficit increased.
If the federal government's spending is equal to 1998 and 2001 then the government has a budget, but since then it has had a budget.
If the federal government collects more money.
The budget operates with more revenues than it spends, which is 13 percent of GDP.
If the Social Security Administration holds U.S. Treasury bonds, the government makes debt payments to other agencies.
When the federal government has a budget deficit, the net public debt increases.
When government outlays are greater than total government receipts, the net public debt increases.
Table 14-1 on the top of the facing page displays real values in base-year 2005 dollars of the federal budget deficit, the total and per capita net public debt, and the net for various years since 1940.
The level of the real net public debt and the real net public debt per capita grew after the early 1980s and then again in the late 2000s.
Over time, the real, inflation-adjusted amount that a typical individual owes to holders of the net public debt has varied considerably.
Table 14-1 does not show a basis of comparison with the size of the U.S. economy.
After World War II, the ratio fell steadily until the early 1970s and then leveled off in the 1980s.
After that, the ratio of the net public debt to GDP continued to rise to around 50 percent of GDP, before dropping slightly in the late 1990s.
Since 2001, the ratio has risen once again.
The government must pay interest on the bonds it has issued to finance the past budget deficits.
The interest payments went up and down in the 1990s and early 2000s.
In the years to come, interest payments will rise as a percentage of GDP due to the higher deficits of recent years.
If U.S. residents were the sole owners of the government's debts, the interest pay ments on the net public debt would go to them.
In this situation, we would owe the debt to ourselves and the government would have to pay interest on the debt.
There are estimates for 2011.
The net public debt owned by foreign individuals, businesses, and governments rose to 20 percent in 1978.
It began to rise rapidly in the late 1980s.
Foreign residents, businesses, and governments hold more than half of the public debt.
We don't owe the debt to ourselves.
Since 2009, bonds issued by several European governments, including those of $500,000 more in annual interest payments for every $1 billion borrowed, have been paying more interest.
Greece, Ireland, Italy, Portugal, Spain, and the United Kingdom have all received lower ratings from bond-rating agencies.
There is a perspective on this question that considers the burdens on future generations.
One focuses on transfers from the U.S. to other nations.
If the federal government wants to purchase goods and services worth $300 billion, it can either raise taxes or sell bonds.
Deficit spending would lead to a higher level of national consumption and a lower level of national saving than the first option, according to many economists.
The economists say that if people are taxed, they will have to forgo private consumption as society replaces government goods with private goods.
The public's disposable income will not change if the government does not raise taxes and instead sells bonds.
Think about how rising federal people treat government borrowing differently than they treat taxes.
People will believe that they can consume pro page 311.
Investment expenditures on capital goods must decline in a closed economy.
The mechanism by which investment is crowded out is an increase in the interest rate.
Deficit spending increases the demand for credit but does not change the total supply of credit.
The rise in interest rates causes a reduction in the growth of investment and capital formation, which in turn slows the growth of productivity and improvement in society's living standard.
Deficit spending can impose a burden on future generations in two ways according to this perspective.
Future generations will have to be taxed at a higher rate if the deficit spending is allocated to purchases that lead to long-term increases in real GDP.
The government will only be able to retire the higher public debt from the present generation's consumption of governmentally provided goods if it is able to impose higher taxes on future generations.
Second, the increased level of spending by the present generation crowds out investment and reduces the growth of capital goods, leaving future generations with a smaller capital stock and reducing their wealth.
Each adult person's implicit share of the net public debt liability is $60,000, so learning about the agency that manages the large deficits financed by selling bonds to U.S. residents is important.
The government is forced to pay off the debt at that time.
A large portion of the debt is owed to ourselves.
The government will use $60,000 in taxes to pay off the debt, but not the bondholders.
Sometimes the bondholders and taxpayers are the same people.
Others will get more than $60,000 for their bonds.
If all government debt were issued within the nation's borders, they would be able to pay and receive the same amount of funds.
It could be difficult for low-income adults to get $60,000 to pay off their tax liability.
It's not clear if taxes to pay off debt must be assessed equally.
It seems likely that a special tax would be levied based on ability to pay.
We have assumed that we owe all of the public debt to ourselves.
That is not the case.
If foreign residents buy U.S. government bonds, we don't owe them anything.
Future U.S. debts are held by foreign residents.
Portions of future U.S. residents' incomes will be transferred abroad.
A potential burden on future generations may happen in this way.
The transfer of income from U.S. residents to other nations will not be a burden.
If the rate of return on projects that the government funds by operating with deficits exceeds the interest rate paid to foreign residents, both foreign residents and future U.S. residents will be better off.
A burden will be placed on future generations if funds obtained by selling bonds to foreign residents are spent on wasteful projects.
Current investment and capi tal creation being crowded out by current deficits can be applied the same way.
Future generations will be poorer if deficits lead to slower growth.
If the rate of return on public investments is greater than the interest paid on the bonds, both present and future generations will be better off.
A typical U.S. resident owes thousands of dollars to people in the Netherlands.
The average resident in Greece has foreign debt that is held by the U.S. government.
The answers can be found on page 316.
When we subtract the funds that government agencies invest, resulting in capital formation and borrowing from each other, we get an economic growth rate.
If the rate of generations is higher than the rate of generation's increased consumption of est to be paid to foreign residents, future generations can governmentally provide goods.
Government borrowing may make you better off.
If the debt leads to crowding out of current erations, the burden will be worse off in the future.
Many economists believe that foreign residents hold a large portion of the U.S. public debt.
Their reasoning suggests that a U.S. trade deficit can be caused by a government budget deficit.
In the mid-1970s, imports of goods and services overtook exports of those items in the United States.
The federal budget deficit increased dramatically.
The deficits went up again in the early 2000s.
The budget deficit exploded during the economic turmoil of the late 2000s.
Government budget deficits tend to be accompanied by larger trade deficits.
There is a reason why federal budget deficits are associated with trade deficits.
This is an unpleasant calculation of trade and budget deficits.
If the government's budget is balanced, government expenditures are matched by an equal amount of tax collections and other government revenues.
Until the mid-1970s, the United States exported more than it imported.
The diagram shows that it started experiencing large trade deficits.
Since the 1960s, the federal budget has been in the red.
The federal government will have a budget deficit.
It collects less taxes or both.
Domestic investment and consumption do not decrease relative to GDP.
The funds must come from abroad.
Dollar holders abroad will have to purchase government bonds.
If there is an increase in U.S. interest rates, foreign dollar holders will choose to hold the new government bonds.
When there is an increase in deficits financed by increased borrowing, interest rates will rise.
Foreign dollar holders will have less dollars to spend on U.S. goods when they purchase the new U.S. bonds.
When our nation's government has a budget deficit, we should expect foreign dollar holders to spend more on U.S. government bonds and less on U.S. produced goods and services.
We should expect a decline in U.S. exports as a result of the U.S. government deficit.
One consequence of higher U.S. government budget deficits is higher international trade deficits.
Higher budget deficits, such as the government's budgeting process, go to higher deficits of recent years, are likely to have broader consequences for the economy.
Two important points must be kept in mind when evaluating additional macroeconomic effects of government deficits.
Higher taxes are the main alternative to the deficit.
The effects of a deficit should be compared to the effects of higher taxes.
It is important to distinguish between the effects of deficits when full employment exists and the effects when substantial unemployment exists.
The answer depends on the state of the economy.
Even after taking into account direct and indirect expenditure offsets, higher government spending and lower taxes that generate budget deficits add to total planned expenditures.
The increase in aggregate demand can eliminate the recessionary gap and push the economy to its fullemployment level.
In the case of a short-run recessionary gap, government deficit spending can affect both GDP and employment.
If the economy is at the full-employment level of real GDP, increased total planned expenditures and higher aggregate demand created by a larger government budget deficit create an inflationary gap.
The price level increases when the equilibrium real GDP is above the full-employment level.
The economy has adjusted to changes in all factors.
Changes in government spending and taxes are included in these factors.
Real GDP remains at its fullemployment level even though the government budget deficit raises aggregate demand.
Inflation can only be caused by higher government expenditures or tax cuts.
They have no effect on equilibrium real GDP, which remains at the full-employment level in the long run.
There is no effect on equilibriumreal GDP from higher government budget deficits.
Government spending in excess of government receipts simply redistributes a larger share of GDP to government provided goods and services.
If the government operates with higher deficits, the result is a decrease in the share of privately provided goods and services.
The government takes up a larger portion of economic activity when it spends more than it collects.
There are many suggestions about how to reduce the deficit.
Raising tax collections is one way to reduce the deficit.
The answers can be found on page 316.
The dollars are required to purchase a new U.S.
U.S. imports must be.
The exports are caused by higher government budget deficits.
The federal budget deficit and the equilibrium price level tend to be related.
The long Higher government deficits arise from increased govern run effect of increased government deficits, which raise aggregate demand.
If the economy is a service.
Increasing the amount of taxes collected can wipe out the federal budget deficit.
Projections for 2011.
The federal budget deficit was estimated by the Office of Management and Budget.
We will never see federal budget deficits wiped out by simple tax increases.
The way to eliminate the deficit is to raise taxes on the rich.
Those who pay taxes on more than $1 million in income per year are referred to as "millionaires."
The reduction in the deficit would be trivial if you double the taxes they pay.
Changing marginal tax rates at the upper end will produce disappointing results.
An increase in the top marginal tax rate from 35 percent to 45 percent would raise about $35 billion in additional taxes, according to the IRS.
The opposite of eliminating a deficit in this way has happened.
Congress usually increases government spending when tax revenues increase.
The policy took the incomes of the public debt.
Reducing expenditures is one way to decrease the budget deficit.
Although military spending as a percentage of total federal spending has security programs and Medicare and other health programs now account risen and fallen with changing national defense concerns, national for larger shares of total federal spending than any other programs.
National defense as a share of total federal expenditures has risen slightly in recent years, though it remains much lower than in previous years.
Military spending was the most important part of the federal budget.
Payments for Social Security and other income security are included.
Spending on entitlements made up 20% of the federal budget in 1960.
About one-third of federal spending is entitlement expenditures.
Consider the benefits of Social Security, Medicare, and Medicaid.
In constant 2005 dollars, Social Security, Medicare, and Medicaid accounted for $2,200 billion of federal expenditures.
Deficit Spending and the Public Debt Entitlement payments for Social Security, Medicare, and Medicaid now exceed all other domestic spending.
The federal government's entitlement budget is growing faster than any other part.
The economy grew less than 3 percent per year over the past two decades, while real spending on entitlements grew between 7 and 8 percent per year.
Social Security payments are growing at a slower rate than Medicare and Medicaid.
The passage of Medicare prescription drug benefits in 2003 and the new federal health care legislation in 2010 added to the already rapid growth of these health care entitlements.
Many people think entitlement programs are necessary.
The federal budget deficit is not expected to drop in the near future because entitlement programs are not likely to be eliminated.
Government benefit programs can be difficult to cut once they are established.
The task of containing federal budget deficits is likely to be difficult.
The answers can be found on page 316.
Increasing taxes is one way to decrease the federal budget.
Proposals to reduce deficits by raising taxes cut back on government spending, particularly on the highest-income individuals will not be appreciably __________, defined as benefits guaranteed under govern reduce budget deficits, however.
After graduating, you will face the good news and the bad.
The 25 cents go to paying interest on your degree, and you received your first paycheck.
The U.S. government had debts.
It is good news by the end of the year.
It is possible that you will be able to forget about the federal government's share of your first postcollegiate paycheck as you celebrate your graduation day.
The government budget deficit and net public debt in several European nations have been rising rapidly.
The United States has taken the lead in deficits because of the rapid increase in the U.S. government budget deficit.
N Balanced Budget may catch up with Europe's levels eventually.
It shows that the United States has a higher budget deficit than other countries.
The budget deficit as a percentage of GDP in the U.S. is twice as high as in the euro.
To attain a balanced use the euro as a common currency.
The government budget deficit in Japan and several European countries is higher than in the United States.
The levels of net public debt in Greece, Italy, and other countries can be found at www.econtoday.com/ch14.
In Japan, people would have to give up their jobs.
The U.S. ratio is not the highest among industrialized nations.
The U.S. net public debt-GDP ratio is more than twice as high as it was in 2000.
Section N: News is explained by the fact that the U.S. government's debt-GDP ratio is so high.
You should know what to know after reading this chapter.
Chapter 14 expenditures are less than government revenues surplus.
The deficit has gone up to over 300 percent of GDP.
The public debt is a net public debt, 302 stock, called the public debt.
The net public debt as a share of GDP has gone up in recent years.
Capital formation and future economic growth can be affected by current crowding out of investment.
Future generations will be worse off if foreign residents who purchase some of the U.S. public debt don't use their capital wisely.
Increased government spending or tax cuts can cause a rise in total planned expenditures and aggregate demand.
If there is a short-run recessionary gap, higher government deficits can push equilibrium real GDP toward the full-employment level.
A short-run inflationary gap can be created if the economy is already at full employment.
Log in to MyEconLab, take a chapter test, and get a personalized study plan that tells you which concepts you understand and which ones you need to review.
MyEconLab will give you further practice, as well as videos, animations, and guided solutions.
Government spending is $4.3 trillion and taxes collected are $3.9 trillion.
The effects of a higher public are the same as the effects of a higher deficit.
The federal government was operating with a balanced budget until this year, when it has increased its spending well above its collections of taxes and other sources of revenues.
Foreign residents have not shown any interest in purchasing the bonds.
The dollar difference was determined last year.
The link at www.econtoday.com/ch14 will take you to the Office of Management and Budget.
The most recent budget is governed by possible ways.
"Federal each group develop rationales for supporting its position."
Discuss the merits of the alternative positions and rationales in the relative discussion of the discussion in this chapter.
Explain the official definitions of the (from $100,000 to $250,000) for most deposit accounts after Congress raised the upper limit.
The basic structure and deposits up to $1 million are provided by banks.
Before you can explain the essential features of federal, you must learn about the role of banks in our economy and about the rationales for and structure of the U.S. deposit insurance system.