325_Supplement16

325_Supplement16 - Department of Economics University of...

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Intermediate Macroeconomic Analysis Spring 2011 1 Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Supplement 16 Professor Sanjay Chugh Spring 2011 The following article appeared in the Wall Street Journal on April 12, 2011. It discusses the evolving negotiations on raising the federal government’s statutory debt limit, which currently stands at roughly $14 trillion. With ongoing federal budget deficits, which necessitates continued borrowing (i.e., bond issuance), the government is projected to hit the debt limit within the next few months. If the debt limit is not raised, an eventual default (i.e., nonrepayment of some debt that is maturing) later this year is forecast by many parties to be likely (barring some major and surprise cut in some other component(s) of regular government spending). You should be able to use the framework of Chapter 15 to broadly analyze the issues raised.
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Intermediate Macroeconomic Analysis Spring 2011 2 POLITICS APRIL 12, 2011 President Open to Deal on Debt Cap By DAMIAN PALETTA And CAROL E. LEE White House officials have opened the door to a deal with Republicans that would allow the U.S. to increase its ability to borrow, potentially easing worries in financial markets that the country might default on its debt. Softening the administration's earlier insistence that Congress raise the so-called debt ceiling without conditions, officials now say they won't rule out linking an increase of the borrowing cap with cuts aimed at reducing the deficit—even though they'd prefer to keep the issues separate. The shift by the White House comes at a critical point in a debate about the country's fiscal future. Last week, Congress and the president inked a deal to avert a government shutdown, shifting the focus of debate to the next milestone: The point in the next few
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325_Supplement16 - Department of Economics University of...

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