Today’s Schedule – 11/22 Budget Deficits and National Debt Economic Cartoon HW – Read 16.2: Federal Reserve – Study for Ch. 14/15 Quiz

Balancing the Federal Budget Federal Budget – Expenditures – Revenues When expenditures = revenues there is a balanced budget – Rarely happens

Budget Surplus When the government is taking in more money than it is spending – Can occur by decreasing expenditures

Budget Deficit When the government spends more money than it is taking in – Represents one (1) fiscal year Can occur by – Increasing expenditures – Decreasing taxes

Paying Bills in a Deficit Make more money – Physically make more bills – Electronically make more money and deposit into people’s accounts – Can lead to hyperinflation

Paying Bills in a Deficit Borrow money – Often done by selling bonds Types of bonds – Treasury Bond- up to 30 yrs – Treasury Note- 2-10yrs – Treasury Bill- 3mos.-1yr

National Debt All the money the government owes people who own bonds – All owed money up to that time Currently $17 trillion!

Problem with National Debt Crowding-out effect – Govt sells bond with high interest rates to attract ppl – Businesses spend more money on bonds than investing in their business Paying interest – Opp. cost in paying interest instead of investing money into welfare of country

Reducing National Debt 1990 Budget Enforcement Act “pay as you go” – Congress has to raise money to increase spending on existing programs Some have proposed a law requiring a balanced budget every year – Has passed in the House, but not Senate

1990s Clinton administration – Increased taxes – Resulted in more government revenue Low unemployment – More people paying more in taxes

2000s Return to deficit – End of stock market boom – Economic slowdown (aka recession!) – Tax cuts – 9/11 Rebuilding and defense costs