Post on 19-Jan-2016
18 - 1Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
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, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
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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, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
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Causes:• Wars• Recessions• Lack of Fiscal Discipline
THE PUBLIC DEBTFacts and Figures:
Quantitative Aspects• Debt and GDP• International Comparisons• Interest Charges• Ownership
18 - 4Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
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0 20 40 60 80 100 120 140
JapanItaly
BelgiumCanadaFranceSpain
SwedenGermany
United StatesNetherlands
United KingdomFinland
DenmarkAustralia
GLOBAL PERSPECTIVEPublic Sector Debt as a percent of GDP, 2002
Source: Organization for Economic Cooperation and Development
18 - 5Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
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Social Security Considerations• Social Security Trust Fund
THE PUBLIC DEBT
False Concerns• Bankruptcy
• Refinancing• Taxation
• Burdening Future Generations
18 - 6Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
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PUBLIC DEBT OWNERSHIP, 2002
10%
33%
11%
18%
11%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, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
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• Income Distribution
• Incentives
• Foreign-Owned
Public Debt
•External Public Debt
SUBSTANTIVE ISSUES
18 - 8Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
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• Crowding Out and
the Stock of Capital
•Public Investment
•Public-Private
Complementarities
SUBSTANTIVE ISSUES
18 - 9Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
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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, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
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DEFICITS AND SURPLUSES1992 - 2012
Source: Congressional Budget Office
$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
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
ActualProjected (as of May 2003)
18 - 11Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
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•Pay Down the Public Debt•Cut Taxes•Increase Federal Expenditures
•Back to Deficits in 2002•Bush Tax Cuts of 2001•The Economic Downturn•September 11, 2001•Tax Cuts of 2003
OPTIONS FOR THE SURPLUSES
public debtU.S. Securitiesannually balanced budgetcyclically balanced budgetfunctional financeSocial Security trust fundexternal public debtpublic investments
ENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005
18 - 13Copyright McGraw-Hill/Irwin, 2005
Deficits, Surpluses, and Debt
The Public Debt
Ownership of the Public Debt
Substantive Issues
The Crowding Out Effect
Deficits and Surpluses 1992-2012
Options for the Surpluses
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
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Disputes OverMacro Theory
And PolicyChapter 19