Principles of Economics- Mankiw (5th) 555

Principles of Economics- Mankiw (5th) 555 - CHAPTER 25 S AV...

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CHAPTER 25 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 573 Congress would be tempted to spend the surplus on “pork barrel” projects of dubious value. As this book was going to press, the debate over the budget surplus was still raging. There is room for reasonable people to disagree. The right policy depends on how valuable you view private investment, how valuable you view public investment, how distortionary you view taxation, and how reliable you view the political process. CASE STUDY THE HISTORY OF U.S. GOVERNMENT DEBT How indebted is the U.S. government? The answer to this question varies sub- stantially over time. Figure 25-5 shows the debt of the U.S. federal government expressed as a percentage of U.S. GDP. It shows that the government debt has fluctuated from zero in 1836 to 107 percent of GDP in 1945. In recent years, gov- ernment debt has been about 50 percent of GDP. The behavior of the debt–GDP ratio is one gauge of what’s happening with the government’s finances. Because GDP is a rough measure of the govern-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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