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Transcript

Lecture 10

Q1

When government spending exceeds government revenues in a given year it is known as:

Terminology

Correct!

budget deficit

A budget deficit occurs when government spending exceeds government revenue in a given year. Federal debt is the accumulation of all budget deficits and budget surpluses over the life of the country.

budget surplus

Try Again!

A budget surplus occurs when revenues exceed spending.

A budget deficit occurs when government spending exceeds government revenue in a given year. Federal debt is the accumulation of all budget deficits and budget surpluses over the life of the country.

Try Again!

federal debt

A budget deficit occurs when government spending exceeds government revenue in a given year.

Federal debt is the accumulation of all budget deficits and budget surpluses over the life of the country.

Q2

True or False: The level, or total amount of federal debt, is the best measure of magnitude of the debt.

Magnitude

True

Try again!

The level of debt alone does not provide much insight, how large is the economy? How many tax payers are funding the debt? etc.

False

Correct!

The level of debt alone does not provide much insight, how large is the economy? How many tax payers are funding the debt? etc.

Q3

Which of the following is a major concern with the federal debt?

Worries?

Correct!

Income Inequality

When taxpayers pay back the debt their income and wealth is reduced. Typically the holders of public debt are wealthy, the taxpayers pay the wealthy causing an increase in income inequality.

Try Again!

Since most of the debt is held by Americans, it is not burdening future generations to have Americans pay back Americans.

It is when money leaves the country that is less desirable.

Burden future generations

Try Again!

Bankruptcy

The U.S. government is not seen as a risky borrower and most are confident of their ability to pay back the loan.

For this reason it is very unlikely the country will go bankrupt.

Q4

Calculation

Calculate budget deficit and surplus for each year.

What is the federal debt after year 4?

What is the country's Debt to GDP, if GDP is $75?

Debts

The budget deficit/surplus is calculated by taking the government revenue and subtracting the government spending. If it is spending is greater (a negative number) the country had a deficit that year.

Once this has been done for all 4 years, add the surpluses and subtract the deficits to calculate the debt.

To find the debt to GDP ratio take the level of debt and divide it by GDP. Multiply your answer by 100 to get as percentage.

The numbers can be found in the table.

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