Budget Deficits and Debt 10.17

Budget Deficits and Debt 10.17 - Budget Deficits and Debt...

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Budget Deficits and Debt I. What is National Debt? A. The sum of the debt of the federal government in the form of interest-earning bonds B. Reflects loans to the US treasury C. Represents the cumulative effect of all prior budget deficits and surpluses 1. Budget deficit a. Increases the size of the national debt by the amount of the deficit 2. Budget surplus a. Allows federal government to pay off bondholders b. Reduces the size of the national debt D. Who owns the national debt? 1. Of the $14 trillion debt a.43% is held by government agencies and Federal Reserve banks b. The rest is privately held - $6.3 trillion i. 48.5% by domestic investors, 51.5% by foreigners E. Implications of national debt 1. Future generations that pay the tax liability accompanying debt also get interest income 2. Opportunity cost matters a. Opportunity cost of resources used by Gov. is incurred now F. Impacts of foreigners holding US debt 1. Foreign capital inflows a. Lead to lower interest rates and greater investment
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This note was uploaded on 03/12/2012 for the course ECON 110 taught by Professor Heller during the Spring '12 term at Georgia Perimeter.

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Budget Deficits and Debt 10.17 - Budget Deficits and Debt...

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