Chapter 17 - 1 Chapter 17 The Government and the and the...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Chapter 17 The Government and the and the Macroeconomy Charles I. Jones 17.1 Introduction • In this chapter, we consider: – government spending, taxation, budget deficits, and the debt-GDP ratio – the government’s inter-temporal budget constraint – the economic consequences of budget deficits – the fiscal problem of the twenty-first century: how to finance rising health expenditures • The government is allowed to borrow or lend in a given year but the government’s budget must balance in present discounted value. – Budget deficits today must be offset by budget surpluses. • Recent forecasts suggest current U.S. policies are unsustainable and will result in an explosion of deficits. 17.2 U.S. Government Spending and Revenue • In 2008, federal spending – was about 21% of GDP – approximately $15,000 per person. – 17.5% of GDP was collected in the form of taxes. • The budget balance: – the difference between tax revenues and spending • A budget surplus: – occurs when taxes exceed spending • A budget deficit: – occurs when spending exceeds taxes – Government must borrow from lenders by selling bonds • A balanced budget: – occurs when spending equals taxes 2 Spending and Revenue over Time • World War II – Taxes and expenditures rose sharply during the war – spending and revenues were an spending and revenues were an approximately stable fraction of GDP after the war • Systematic budget deficits emerged starting around 1970. The Debt-GDP Ratio • Government debt – the outstanding stock of bonds that have been issued in the past. • 2005 – the debt-GDP ratio was 37 percent • 2010 – the debt-GDP ratio was 60 percent • Half of the debt is owed to U.S. entities and the other half to foreigners. • The net debt: – government debt that is held outside of the government. • The government itself holds a large amount of bonds and including these would raise the debt-GDP ratio to 94 percent (2010 data) 15.7 International Evidence on Spending and Debt • Among the richer OECD countries, the US has a lower than average: government spending to GDP ratio – government spending to GDP ratio – debt-GDP ratio. 3 15.7 International Evidence on Spending and Debt • South Korea – The debt-GDP ratio is negative – the government is a net lender • Norway – negative debt-GDP ratio – saves its surpluses....
View Full Document

{[ snackBarMessage ]}

Page1 / 9

Chapter 17 - 1 Chapter 17 The Government and the and the...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online