American government Unit: Chapter 16 II. Borrowing and the Public Debt

Objectives Describe federal borrowing. Explain how the Federal Government’s actions can affect the economy. Analyze the causes and effects of the public debt.

Borrowing Constitution gives power to borrow Used to be for crisis/wars or to pay for large scale project/Panama Canal During the Depression – paid for deficits – still do today. Deficit – shortfall of revenue each year Surplus – extra money

Keynesian Economics John Maynard Keynes – in times of high unemployment, the government should spend lots of money. Demand-side economics – deficit spend to encourage growth and new tax revenue to cover it. Supply-side economics – lower taxes will create growth and new tax revenue will increase. Bush and Obama stimulus plans pumped 1.5 trillion dollars into economy to help banks, more consumer spending, stop unemployment.

Government borrowing Treasury notes for short term borrowing (t- bills) Bonds for long term Called security – US government is a good secure investment Cant be taxed on interest from securities

Public Debt Public debt – total amount of money the US government is indebt. Took 192 years to reach 1 trillion Took last three decades to hit 12 trillion In 2008, US paid 238 billion dollars in interest alone Since no pay as you go – our future generations will have to pay the bill – this means you. http://www.uwsa.com/us-national-debt.html

Review Get in groups of 2 or 3 and discuss what each of these quotes mean. What are they telling us?