Professional Documents
Culture Documents
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Budget Terms
A Budget Surplus exists when Tax Revenues
are greater than expenditures and is the
difference between the two.
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Figure 12.1 Federal Budget Deficits, and Surplus
as a Percent of GDP, 1959-2002
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Surpluses, Deficits and the Debt as a
Percentage of GDP
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High-Employment Deficit or Surplus
The budget balance is altered significantly by the state
of the economy.
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Measuring Budget Balance
On Budget vs Off Budget
Social Security and the Post Office are run off budget.
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Unified Budget
The Unified Budget is the sum of the on- and off-
budget deficits and surpluses.
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National Income and Product Accounts Budget
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Real Surpluses and Deficits
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Economic Effects of Federal
Budget Deficits
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Figure 12.2 Government Demand for Loanable
Funds and the Market Rate of Interest
S
Interest Rate
i2 E'
i1 E
D 1 + ∆ DG
D1
0 L1 L2
Loanable Funds per Year 11
Ricardian Equivalence
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Figure 12.3 Ricardian Equivalence:
Deficits Do Not Affect Interest Rates
S
Interest Rate S'
i2 E'
i1 E E''
D 1 + ∆ DG
D1
∆L
0 L1 L2 L3
Loanable Funds per Year 13
Economic Effects of Federal Budget
Surpluses
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Figure 12.4 Impact of a Budget Surplus on Credit Markets
S
S' = S1 + ∆ L
E
Interest Rate
I1 E'
I2
∆L
0 L1 L2
Loanable Funds per Year
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Budget Balance, National Saving,
and Economic Growth
An increase in the deficit contributes to a decrease
in national savings, while an increase in a surplus
contributes to a increase in national savings.
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Figure 12.5 The National Savings Rate and its
Components, 1959-2002 (Ratio of Savings to GNP)
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Incidence of Deficit Finance
Lower growth rates imply lower incomes for future
generations.
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The Government Debt
January 2003
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Figure 12.6 Federal Debt Held by the Public as a
Share of GDP (By fiscal year)
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Net Federal Debt
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Gross public Debt of the US Treasury by
Holder January 29, 2003
Holder Amount of Percent of
Debt (Billions Total
of Dollars)
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Net Public Debt of the U.S. Treasury by Holder
(Percent Distribution) June 2002
Holder Percentage of
Total
Depositors and Institutions 7.2
Mutual Funds 8.8
Insurance Companies 3.9
Pension Funds 10.5
State and Local Governments 9.5
Foreign and International 39.6
Other Investors 22.5
Total 100.0
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Internal and External Debt
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State and Local Borrowing
Bonds are issued by state and local governments
to fund large projects.
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General Obligation vs Revenue Bonds
General Obligation Bonds are backed
by the state or local government’s
ability to tax.
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Social Security and the Deficit
Social Security Surpluses are used to purchase
federal government debt.
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Burden of the Debt
Impact on future generations:
People have to pay increased taxes to pay interest
on that debt.
Some may inherit the original bonds.
Growth rates are reduced because of higher interest
rates.
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Financing Capital by
State and Local Governments
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National Saving and Government Budget Balance
National saving in the United States
remains low by international standards.
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