EC140 Chapter Notes - Chapter 32: Government Budget Balance, Government Debt, Real Interest Rate

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17 Apr 2016

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Three categories of government expenditure: government purchases of goods and services (g, interest payments on the outstanding stock of debt; referred to as debt- service payments. Denoted as i x d (interest rate times stock of debt: transfers to individual and irms, however transfers are part of net tax revenue (t) G + i x d = t + borrowing (g + i x d) - t = borrowing. This equation means that any excess in government spending beyond net tax revenues must be inanced through borrowing! Budget deicit ~ excess of government expenditures over tax revenues. This is the same as the amount borrowed from the government for a given year! Government debt (d) ~ the outstanding stock of inancial liabilities for the government, equal to the accumulation of past budget deicits. Budget deicit = d = (g + i x d) - t. Budget surplus ~ any excess in government tax revenue over government expenditures.

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

pucearmadillo585

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 canât pay benefits by 2018.

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

ceruleancrow374

Greece has a GDP of some 200 billion euros, with exports of about 40 billion euros and imports of about 50 billion euros. Assume net unilateral transfers are zero, and the statistical discrepancy in the balance of payments is zero.

Show your calculations and answers after each sub-part to this question:

a. What is Greece's expenditure on the sum of consumption (C), investment (I) and government purchases (G)?

b. What is Greece's current account balance?

c. What is Greece's current account balance as a percentage of GDP?

d. What is Greece's balance on the capital & financial account of the balance of payments?

e. Greece's government sector budget deficit this year is 2.0% of GDP. What is the balance of private sector saving and investment, as a percentage of GDP?

f. Last year Greece's foreign debt was 325 billion euros. Based on your answers to the above questions, what will Greece's foreign debt be this year?

harlequintrout221

EC140 Chapter Notes - Chapter 32: Government Budget Balance, Government Debt, Real Interest Rate

EC140 Full Course Notes

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