Borrowing and the Public Debt. What is a SURPLUS?

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Presentation transcript:

Borrowing and the Public Debt

What is a SURPLUS?

When there is more income than outgo. The government takes in more money than it spends. Surplus in only 19/226 years since founding of the country in 1789.

What is a DEFICIT?

The shortfall between income and outgo It is how much the government has fallen short of its spending The government spends more money than it takes in: Deficit Spending Government borrows money to make up the difference.

Deficit and Debt are Not the Same

DEBT Total amount of money owed as a result of borrowing to make up the deficit

Who has the power to borrow?

CONGRESS

There is no Constitutional limit on how much Congress can borrow in any given year. The debt ceiling [the limit on the national debt] is a law created by Congress, it’s not in the Constitution Congress can raise the debt ceiling whenever they choose to do so.

The Debt – – bt.html bt.html

Tuesday, 3/17/15, Day 2 Essential Skill: Explicitly Assess Information and Draw Conclusions 1-Test: Thursday, 3/19 2- “Borrowing and the Public Debt” Keynesian [Demand-side] Economics Supply-Side Economics How Borrowing Occurs Public Debt 3- “Inequality for All” Continue filling out viewer’s guide

What is Keynesian Economics?

What is Keynesian Economics? Government should influence the economy with large increases in public spending in times of high unemployment. Even if government must borrow to support the increased spending, the high employment that results will soon produce higher tax revenues [which will eventually pay down the deficit] Called DEMAND-SIDE ECONOMICS [to stimulate customer demand to purchase goods with money from jobs, the greater the demand, the more goods and services will be created; leads to economic growth]

What is Supply-Side Economics?

What is Supply-Side Economics? Lower taxes, not greater spending will lead to a stronger economy [Reaganomics] Tax cuts increase the supply of money in private hands and so stimulate the economy [Private sector will take the saved tax money and hire more workers which will stimulate the economy]. Consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees.

How Borrowing Occurs Treasury Department issues various kinds of securities to investors [banks; China] Securities usually T-bills [treasury bills] for short-term borrowing; bonds for long-term borrowing [IOUS, promissory notes in which the government agrees to repay, plus interest, by a certain date. Fed Gov. is able to borrow money at lower rates of interest than private borrowers can. Federal securities are attractive to investors because the interest they earn cannot be taxed by any of the states or their local governments.

Public debt: The total outstanding indebtedness of the federal government. All money borrowed and not repaid, plus the accrued [increase in amount or value overtime] interest on borrowing. Impact of debt on future generations???