Lecture-14-15-slides

Lecture-14-15-slides - Lecture 14 and 15: Budget Deficits,...

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1 Lecture 14 and 15: Budget Deficits, Surpluses, and the Public Debt Reference – Chapter 10 LEARNING OBJECTIVES 1. The definitions of budget surplus, budget deficit, the public debt, and the diverse budget philosophies. 2. About the recent Canadian budget surpluses, deficits, and public debt. 3. The misconceptions about budget deficits and the national debt. 4. The substantive issues about budget deficits and the national debt. 5. About recent budget surpluses.
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2 I. Definitions of deficit, surplus and debt A. A budget deficit is the amount by which government’s expenditures exceed its revenues during a particular year. In contrast, a surplus is the amount by which its revenues exceed expenditures. 1. 1996-97: Federal deficit $13.5B 2. 2001-02: Surplus $8.4 billion. 3. 2003-04: Surplus $6 billion 4. 2004-05: B. The national or public debt is the total accumulation of the Federal government’s total deficits and surpluses that have occurred through time. 1. 2002: $640B 2. 2003: ; 2004:
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3 II. Three Budget Philosophies A. The annually balanced budget was the goal until the 1930s Depression, but this ruled out using fiscal policy as a countercyclical, stabilizing force and even makes recession or depression worse. 1. The balanced budget is not neutral, but is pro-cyclical, that is, it worsens the business cycle. 2. In a recession, the government would have to raise taxes and lower spending to balance the budget as tax revenues fell with recessionary income levels. This policy would worsen recession.
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4 3. In an inflationary boom period, a balanced budget would intensify the inflation. As tax revenues increased, the government would need to cut taxes or raise spending to avoid a budget surplus. This strategy would make the inflation worse. 4. Those
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This note was uploaded on 06/20/2009 for the course ECN 204 taught by Professor Unknown during the Spring '09 term at Ryerson.

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Lecture-14-15-slides - Lecture 14 and 15: Budget Deficits,...

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