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EC140 Lecture Notes - Lecture 20: Business Cycle, Potential Output, Procyclical And Countercyclical

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School
WLU
Department
Economics
Course
EC140
Professor
Ken Jackson

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EC140 Full Course Notes
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EC140 Full Course Notes
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Document Summary

Ec 140- lecture 20: government debt and deficits; chapter 31. Net tax revenue (t) = taxes collected total transfers. Government spending, g, is part of aggregate expenditure. So far, budget surplus defined as taxes minus government spending. This was a simplification- now separate out borrowing, and payments on government debt. Government debt is the total stock of financial liabilities for the government. A budget surplus or deficit is the difference between current revenue and current expenditure. Debt is a level, deficits and surpluses are the change in the debt. Expenditures must be paid from net tax revenue or borrowing. Expenditure include spending and interest on the debt g + i * d = t + borrowing. The budget deficit is this the change in the debt: average d = g + i * d t. Governments don"t have direct control over debt-service (i*d) Primary budget deficit ignores debt service: primary budget deficit = g t.

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Related Questions

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000 C = Consumption expenditure, DI = Disposable Income
I = 2000 I = Investment expenditure
G = 1000 G = government expenditure
X = 1600 X = spending on exports
M = 1800 M = spending on imports
DI = Y - T Y = real GDP, T = tax revenues/>
T = 1000  
Yp = 12000 Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

  a.

inflationary gap
  b.

recessionary gap
  c.

no output gap
  d.

government budget surplus
  e.

government budget deficit
  f.

balanced government budget
  g.

trade deficit
  h.

trade surplus
  i.

net exports of zero

What are the relationships between current account deficit (CAD), budget deficit and national debt, knowing that the US national debt is currently at $21.13 trillion? Note the following GDP equation and identities: I = Sp + (T - G) + (Im - Ex). I=Investment; Sp=private savings; T-G = public savings, tax revenue minus government spending, which could be a budget deficit if G>T; Im-Ex = imports minus exports, which could lead to current account deficit if Im>Ex leading to NCI (net capital inflow).

1. The government has a balanced budget when the economy is at full employment. When the economy weakens, tax revenue ________ and spending on transfers _________. This causes a ____________ ______________.

2. Social Security has revenues of $1.8 trillion and expenditures of $1.3 trillion. The nonsocial Security budget has revenue of $2.1 trillion and expenditures of $2.4 trillion. The official budget will report a _______________ (deficit/surplus) of $___________________. The national debt will ____________ (rise/ fall) by $______________.

Answer True or False for each of the following.

In recent years government debt grew much faster than GDP.

Conservative economists blame repealing Glass-Steagall for the financial crisis.

In the last few years, the US has run the largest nominal deficits in US history.

Foreigners own more of the national debt today than 40 years ago

The Great Recession results in part from rapidly rising oil prices.

Subprime mortgages are those made at interest rates below the prime rate.

Economists agree that de-regulation lay behind the financial crisis.

Credit deposit swaps are mortgage-based derivatives.

Social Security runs completely out of money and can’t pay benefits by 2018.

The national debt to GDP ratio in the U.S. has never been higher than right now.