Chapter 13: Federal Deficits, Surpluses, and National Debt

Crowding out effect

a reduction in private sector spending as a result of federal deficit. When government borrows it increase interests rates. - crowding is complete if at full employment, but debatable if less than full employment

Crowding in effect

an increase in private sector spending as a result in budget deficit. All less than than full employment consumers hold on to securities causes them to spend more, and business investment increases due to expectations

Internal National Debt

is the percentage of the national debt a nation owes to its citizens "we owe it to ourselves" (27%)

Debt Ceiling

method use to restrict the growth of national debt

Net Public Debt

national debt minus all govt inter-agency borrowing(owes to itself)

External National Debt

portion of the national owe to foreigners (31%)

Can Uncle Sam go bankrupt?

the U.S. govt will not go bankrupt b/c it never has to pay off its debt. When the Treausury mature, they can be refinanced or rolled over issuing new securirties

Does govt spending burrowing crow out private sector spending?

the crowding out effect is a burden to our national debt since govt borrows to finance deficit causing interest rates to rise

National Debt

the dollar amount that the federal government owes holders of government securities.it is the cumulative sum of past deficits

Are we passing the debt to burden to our children?

their is a counterargument that national debt is transferring purchasing power to foreigners,