Budget and Monetary Policy

Budget and Monetary Policy - Budget and Monetary Policy...

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Budget and Monetary Policy Federal Budget : revenues (mostly taxes) and outlays (transfer payments, government spending, and fed employee salaries). -going to be expressing everything in terms of percentage of the GDP Public Debt: How the government manages debt is through the sale of bonds. -1959: 200 billion debt -1997: 3.7 trillion debt -2002: 3.5 trillion debt -2008: 10 trillion debt -2011: 15 trillion debt -2011 debt as percentage of the GDP: around 100% -2/3 of of bonds, bought by non-government, however 1/3 is bought by the government. Sometimes doesn’t count inter-governmental debt, however government cannot use money that it owes even to other parts of the government. -Government can go out and sell more bonds to pay off the principle of debts, however, not necessarily the interest of the debt. -Investment communities will rate risk higher if governments cannot pay interest on U.S. bonds. What do you do? 1. Nothing -Continue to sell bonds to pay off debt: crowding out effect, interest rates will go up, investment goes down. GDP will go down. -Foreign held component of debt -Net outflow of money. -Compromises economic policy, foreign investors can change policy. I.e. Chinese government depreciates its currency, so U.S. money is
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This note was uploaded on 04/06/2012 for the course ECON UA 1 taught by Professor Harrykitsikopolous during the Fall '11 term at NYU.

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Budget and Monetary Policy - Budget and Monetary Policy...

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