Transcript Budget Deficits and the National Debt

Budget Deficits
and the National
Debt
Objectives
• Students will explain the importance of
balancing the budget
• Students will analyze how budget
deficits add to the national debt
• Students will summarize the problems
caused by the national debt
• Students will identify how a
government can reduce budget
deficits and the national debt
Balancing the Budget
• Balanced Budget
o A budget in which revenues are equal to spending
• Budget Surplus
o A situation in which the government takes in more than it spends
• Budget Deficit
o A situation in which the government spends more than it takes in
Balancing the Budget
• Responding to budget deficits
o Choices the government has
• Creating money
o Can result in hyperinflation – inflation that is out of control
• Borrowing money
o Government borrow money through the use of bonds
• Treasury bills
o A government bond that is repaid within three months
to a year
• Treasury notes
o A government bond that is repaid within two to ten
years
• Treasury bonds
o A government bond that can be issued for as long as
thirty years
The National Debt
• National debt
o All the money the government owes to bond holders
• Difference between deficit and debt
o Deficit - money borrowed for one year (difference between
revenues and expenditures)
o Debt – the sum of all government borrowing (all money owed)
• Measuring the national debt
o Not measured by economist in dollar terms, but rather in term of
percentage of GDP
The National Debt
• Is the Debt a Problem
o Problems of a national debt
• Crowding-out effect
o The loss of funds for private investments due to borrowing
o Other view of a national debt
• There are benefits of national borrowing
o Produces a more productive economy which will outweigh the
costs of interest of the debt
Deficits, Surpluses, and the
National Debt
• Efforts to reduce deficits
o Some have suggested that there should be a constitutional
amendment that would require that the country has a balanced
budget (Balanced Budget Amendment)
• Already happens in some states
• End-of-century surpluses
o Country had a budget surplus at the end of the previous century
(1990’s)
• Return to deficits
o At the beginning of this century
• Terrorist attacks, etc.