November 16 notes - Deficits and Debt Required Reading...

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Deficits and Debt Required Reading Chapter 16
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Motivation Have discussed Fiscal Policy ¾ Changes in Have not discussed ¾ Government Budget Deficits ¾ Accumulation of the National Debt What are the Effects of Deficits and the Accumulation of the National Debt on the economy? , , , or G TR TX t
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Measurement: Government Budget Definitions: G = Government Purchases TR = Transfer Payments InP = Interest Payments on the National Debt TX = Tax Revenues Spend = G ± N Re Spend overnment Spending Rec = Government Receipts Bud = Government Budget Bud = c G TR InP TX ± ² ² ³ ±²²³²²´
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N Re Spend Bud = When Spend > Rec Bud > 0 Deficit When Spend < Rec Bud < 0 Surplus When Spend = Rec Bud = 0 Balance c G TR InP TX ± ² ² ³ ± ±²²³²²´
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Measurement: Government Debt ND = National Debt = Value of Outstanding Government Bonds Government Bond ¾ Financial Security or Contract ¾ Government (Borrower) pays Holder (Investor) Interest or Coupon Payment per period Value of the Bond at Maturity (usually $10K) ¾ Bond sold in Market for whatever Price it will bear ¾ Funds raised used to finance Government Spending
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