18 - 1 copyright mcgraw-hill/irwin, 2005 deficits, surpluses, and debt the public debt ownership of...

18 - 1Copyright McGraw-Hill/Irwin, 2005

Deficits, Surpluses, and Debt

The Public Debt

Ownership of the Public Debt

Substantive Issues

The Crowding Out Effect

Deficits and Surpluses 1992-2012

Options for the Surpluses

Key Terms

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Deficits,

Surpluses,

and the

Public Debt

18C H A P T E R



The Public Debt


Substantive Issues




Key Terms

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DEFICITS, SURPLUSES, AND DEBT

Definitions:•Budget Deficit•Budget Surplus•National or Public Debt•U.S. Securities

Budget Philosophies•Annually Balanced Budget•Cyclically Balanced Budget•Functional Finance



The Public Debt


Substantive Issues




Key Terms

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Causes:• Wars• Recessions• Lack of Fiscal Discipline

THE PUBLIC DEBTFacts and Figures:

Quantitative Aspects• Debt and GDP• International Comparisons• Interest Charges• Ownership



The Public Debt


Substantive Issues




Key Terms

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0 20 40 60 80 100 120 140

JapanItaly

BelgiumCanadaFranceSpain

SwedenGermany

United StatesNetherlands

United KingdomFinland

DenmarkAustralia

GLOBAL PERSPECTIVEPublic Sector Debt as a percent of GDP, 2002

Source: Organization for Economic Cooperation and Development



The Public Debt


Substantive Issues




Key Terms

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Social Security Considerations• Social Security Trust Fund

THE PUBLIC DEBT

False Concerns• Bankruptcy

• Refinancing• Taxation

• Burdening Future Generations



The Public Debt


Substantive Issues




Key Terms

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PUBLIC DEBT OWNERSHIP, 2002

10%

33%

11%

18%

11%17%

Debt heldBy FederalReserve &

GovernmentAgencies

Debt heldOutside the

FederalReserve &

GovernmentAgencies

Federal Reserve

U.S.Government

Agencies

Other, IncludingState & Local Governments

U.S. Banks & FinancialInstitutions

ForeignOwnership

U.S. Individuals



The Public Debt


Substantive Issues




Key Terms

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• Income Distribution

• Incentives

• Foreign-Owned

Public Debt

•External Public Debt

SUBSTANTIVE ISSUES



The Public Debt


Substantive Issues




Key Terms

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• Crowding Out and

the Stock of Capital

•Public Investment

•Public-Private

Complementarities

SUBSTANTIVE ISSUES



The Public Debt


Substantive Issues




Key Terms

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ID1

Investment (billions of dollars)

Re

al i

nte

res

t ra

te (

pe

rcen

t)

THE CROWDING OUT EFFECTWith a Deficit,An Increase in

InvestmentDemand Causes…

16

14

12

10

8

6

4

2

05 10 15 20 25 30 35 40

ID2Crowding

OutEffect



The Public Debt


Substantive Issues




Key Terms

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DEFICITS AND SURPLUSES1992 - 2012

Source: Congressional Budget Office

$800

700

600

500

400

300

200

100

0

-100

-200

-300

Bu

dge

t D

efic

its

or S

urp

luse

s, B

illi

ons

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

ActualProjected (as of May 2003)



The Public Debt


Substantive Issues




Key Terms

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•Pay Down the Public Debt•Cut Taxes•Increase Federal Expenditures

•Back to Deficits in 2002•Bush Tax Cuts of 2001•The Economic Downturn•September 11, 2001•Tax Cuts of 2003

OPTIONS FOR THE SURPLUSES

public debtU.S. Securitiesannually balanced budgetcyclically balanced budgetfunctional financeSocial Security trust fundexternal public debtpublic investments

ENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005



The Public Debt


Substantive Issues




Key Terms

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Disputes OverMacro Theory

And PolicyChapter 19

18 - 1 copyright mcgraw-hill/irwin, 2005 deficits, surpluses, and debt the public debt ownership of...

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