1. [ 9.3 ] The National Debt and Deficits
Learning Objectives
Explain the importance of balancing the budget.
Analyze the impact of fiscal policy decisions on the nation’s economy.
Identify how political leaders have tried to control the deficit.

2. The Budget Process Agencies submit spending proposals
The Office of Management and Budget (Executive Branch) draws up a budget
Congress debates and passes appropriations bills
The appropriations bills are sent to the White House to be signed (or vetoed) by the President

3. Budget Surpluses and Deficits
Budgets that followed the gray horizontal line on this graph would be balanced.

4. Deficits and the National Debt
When there is a deficit, there are two options: create money or borrow money.
What is the problem with each?

5. The Impact of Debt
The growth of the national debt during the Reagan administration led many to focus on the problems caused by a national debt. In general, three problems can arise from a national debt.
Crowding out
Servicing the debt
Foreign ownership of debt

6. The Impact of Debt
This diagram shows one way excess spending can hurt the economy.
According to this diagram, what causes private businesses to be crowded out in the quest for investment?

7. Measures to Control the Deficit
How would you describe the message of this political cartoon? Explain.

8. Quiz: Budget Surpluses and Deficits
What is the most common method the federal government uses to pay for expenditures that exceed revenues?
A. It spends more.
B. It borrows more.
C. It creates money.
D. It lowers taxes.

9. Quiz: Deficits and the National Debt
To whom does the government owe the national debt?
A. to the general public
B. to government officials
C. to the Treasury Department
D. to investors who hold government bonds

10. Quiz: The Impact of Debt
The dangers associated with having a large national debt are
A. runaway hyperinflation, overheated growth, and low productivity.
B. the crowding-out effect, high interest payments, and the influence of foreign debt-holders.
C. the crowding-out effect, unbalanced budgets, and careless money creation.
D. budget surpluses, deficit spending, and sluggish bond sales.

11. Quiz: Measures to Control the Deficit
Which of the following factors contributed to the deficit spending of the 2000s?
A. a booming economy
B. a federal income tax increase
C. increased spending on defense
D. the sale of government bonds to foreign investors