Post on 26-Dec-2015
18 - 1Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
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Deficits,
Surpluses,
and the
Public Debt
18C H A P T E R
18 - 2Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
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DEFICITS, SURPLUSES, AND DEBT
Definitions:•Budget Deficit•Budget Surplus•National or Public Debt•U.S. Securities
Budget Philosophies•Annually Balanced Budget•Cyclically Balanced Budget•Functional Finance
18 - 3Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
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Causes:• Wars• Recessions• Tax Cuts
THE PUBLIC DEBTFacts and Figures:
Quantitative Aspects• Debt and GDP• International Comparisons• Interest Charges• Ownership
18 - 4Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
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EndShow
0 20 40 60 80 100 120 140
ItalyJapan
BelgiumCanada
SpainFrance
GermanyUnited States
NetherlandsFinlandSweden
DenmarkUnited Kingdom
Australia
GLOBAL PERSPECTIVEPublic Sector Debt as a percent of GDP,2000
Source: Organization for Economic Cooperation and Development
18 - 5Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
Social Security Considerations• Social Security Trust Fund
THE PUBLIC DEBT
False Concerns• Bankruptcy
• Refinancing• Taxation
• Burdening Future Generations
18 - 6Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
OWNERSHIP OF THE PUBLIC DEBT
9%
28%
11%
22%
13%17%
Debt heldBy FederalReserve &
GovernmentAgencies
Debt heldOutside the
FederalReserve &
GovernmentAgencies
Federal Reserve
U.S.Government
Agencies
Other, IncludingState & Local Governments
U.S. Banks & FinancialInstitutions
ForeignOwnership
U.S. Individuals
18 - 7Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
• Income Distribution
• Incentives
• Foreign-Owned
Public Debt
•External Public Debt
SUBSTANTIVE ISSUES
18 - 8Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
• Crowding Out and
the Stock of Capital
•Public Investment
•Public-Private
Complementarities
SUBSTANTIVE ISSUES
18 - 9Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
ID1
Investment (billions of dollars)
Re
al i
nte
res
t ra
te (
pe
rcen
t)
THE CROWDING OUT EFFECTWith a Deficit,An Increase in
InvestmentDemand Causes…
16
14
12
10
8
6
4
2
05 10 15 20 25 30 35 40
ID2Crowding
OutEffect
18 - 10Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
DEFICITS AND SURPLUSES1990 - 2010
Source: Economic Report of the President, 2001
$800
700
600
500
400
300
200
100
0
-100
-200
-300
Bu
dge
t D
efic
its
or S
urp
luse
s, B
illi
ons
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
ActualProjected (as of 2001)
18 - 11Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
•Pay Down the Public Debt
•Reduce Taxes•Increase Government Expenditures
•Bolster the Social Security Trust Fund
•Combinations of Policies
OPTIONS FOR THE SURPLUSES
18 - 12Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
•Pay Down the Public Debt
•Reduce Taxes•Increase Government Expenditures
•Bolster the Social Security Trust Fund
•Combinations of Policies
OPTIONS FOR THE SURPLUSES
CHAPTERCONCLUSIONS
public debtU.S. Securitiesannually balanced budgetcyclically balanced budgetfunctional financesocial security trust fundexternal public debtpublic investments
ENDBACKCopyright McGraw-Hill/Irwin 2002
18 - 14Copyright McGraw-Hill/Irwin, 2002
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1990-2010
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndShow
Next Disputes OverMacro Theory
And Policy
Chapter 19