23_US_GovDebt

23_US_GovDebt - A Nations Debt: Private and Public Chapter...

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A Nation’s Debt: Private and Public Chapter 17
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Introduction Quick Demonstration to show how the size of the US Debt has grown Need volunteers US Debt when country was formed in 1790 was around $75 million. Adjusted for inflation into today’s $ it was about $900 million.
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Private vs. Public Saving National Savings (S) is divided into 2 parts: Private Savings (amount of income left over after households pay taxes and consume): S private = Y – T – C Public Savings (amount of income left over after gov. has paid for its spending): S public = T – G
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National Saving is Important A country with negative national savings slowly gives up control to creditors. A country with a large positive national savings could be enjoying a better standard of living.
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PRIVATE SAVINGS $$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$
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Private Savings What has happened to private savings in the U.S. over time? Have individuals been saving more or less? Next slide looks at ratio of savings to income.
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U.S. Household Savings Rate Half of 1% 0% 2% 4% 6% 8% 10% 12% 1 9 7 0 1 9 7 2 1 9 7 4 1 9 7 6 1 9 7 8 1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 P e r c e n t O f I n c o m e S a v e d .
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Why Has Personal Savings Fallen? Economists have not agreed on why. Some ideas are Wealth Effect: Many people that own homes, stocks and bonds are now “richer.” One possibility is that they fell less need to save when their assets are worth more. Financial Innovation: Credit cards and home equity lines were once (1950s & 1960s) for just the very rich. Today anyone can borrow. This has caused switch from a “earn it – save – buy it” mindset to a new mindset “want it - buy it now on credit – worry about paying for it later.”
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PUBLIC SAVINGS $$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$
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Why Has Personal Savings Fallen? II Rising wages for college educated workers: Pay has been going up sharply. Why save now when it will be easier to save later? Discussion Question: What do you think are the key reasons why individuals, families and households are on average saving much less?
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Public Savings What has happened to public savings in the U.S. over time? Has the government been making up for lower household saving? To answer this we first need to know some definitions.
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If taxes and other government income in a year are greater than (>) government spending then the Government is running a surplus . The last major federal surplus was run under President Clinton from FY 1998 to FY 2001. If taxes and other government income in a year are less than (<) government spending then the Government is running a deficit . In FY 2010 the federal government under
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This note was uploaded on 04/17/2011 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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23_US_GovDebt - A Nations Debt: Private and Public Chapter...

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