1. Deficits and the Public Debt
Public debt is the total amount the federal government owes its creditors.
Cyclical deficit refers to that part of the budget deficit that is part of an economic downturn.
The Structural deficit is the remainder of the budget deficit that would exist if the economy were operating at full employment.

2. Why know the Difference between Structural and Cyclical Deficit?
We must focus on structural deficit to get a correct reading of fiscal policy.

3. The Size and Type of Deficit
Two important matters were: the size of the deficit and how it was measured.
Currently, the revenues from Social Security taxes are greater than the benefits paid – meaning the Social Security System has a surplus.
In 1998, there would not have been a budget surplus if an adjustment had been made for the Social Security surplus. In fact, there would have been a deficit.

4. The Size and Type of Deficit
Eisner has argued the budget deficit that matters is the real budget deficit, not the nominal budget deficit. To obtain the real deficit, the public debt should be adjusted each year for inflation and then subtracted from the actual or nominal deficit.
Real Budget Deficit = Nominal budget deficit – (Public debt X Inflation rate)

5. The Public Debt
Is equal to the total amount the government owes its creditors.

7. http://www. pakistantoday. com

8. Composition of Debt

9. Who Bears the Burden of the Public Debt?
The Current Generation Bears the Public Debt?
The Future Generation Bears the Public Debt?

10. The Current Generation Bears the Public Debt?
Public borrowing only imposes a burden on the current generation.
The current generation must give up private goods to pay for the increased national defense, so the current generation bears the debt.
If we lump both taxpayers and bondholders together and realize that together they make up future generations, the future generation doesn’t owe any debt, because paying the debt merely details the transfer of funds.
But this doesn’t take into account current budget deficits reducing capitol investment by the current generation: It doesn’t take Crowding Out into account.

11. The Future Generation Bears the Public Debt?
Although resources are drawn from the private sector when debt-financed public expenditures are made, the people who give up these resources do not pay for, or bear the burden of, the public expenditures secured.
The bondholders have entered into a voluntary trade. They decide to consume a little less today in order to consume more (when the bonds are paid off).
The bondholders do not gain anything since they are trading one asset (bonds) for another (money) of equal value and the taxpayers lose something: taxes to pay the bonds off.

12. Budget Surpluses
There was also disagreement as to what should be done with the surpluses.
If budget deficits were translated into “higher future taxes”, then it follows that budget surpluses were translated into “lower future taxes.”
The personal savings rate in the economy was near zero, and consumer spending was strong.