Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The Federal Budget Deficit or SurplusThe Federal Budget Deficit or Surplus

iis s the yearly difference between federal the yearly difference between federal government expenditures government expenditures and revenues.and revenues.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The Federal Budget Deficit or Surplus The Federal Budget Deficit or Surplus

Example 1Example 1If government spending in year 1 is $2,500, and If government spending in year 1 is $2,500, and government revenue is $2,000, then the deficit government revenue is $2,000, then the deficit in year 1 is $500.in year 1 is $500.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The Federal Budget Deficit or SurplusThe Federal Budget Deficit or Surplus

Example 2Example 2If government spending in year 2 is $2,400, and If government spending in year 2 is $2,400, and government revenue is $2,600, then the surplus government revenue is $2,600, then the surplus in year 2 is $200.in year 2 is $200.

Macroeconomics

Let’s play Let’s play Jeopardy!Jeopardy!

FederalFederalDeficitsDeficitsfor $200for $200

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The Federal Budget Deficit or SurplusThe Federal Budget Deficit or Surplus

Answer:Answer:This, approximately, was the U.S. federal budget This, approximately, was the U.S. federal budget deficit for the past fiscal year.deficit for the past fiscal year.What is the question?What is the question?

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The Federal Budget Deficit or Surplus The Federal Budget Deficit or Surplus

Question:Question:What is $1,300 billion?What is $1,300 billion?

Source: http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htmSource: http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The Federal Budget Deficit or Surplus The Federal Budget Deficit or Surplus

Additional websites with budget Additional websites with budget information:information:

http://www.cia.gov/http://www.cia.gov/ http://www.whitehouse.gov/omb/budgethttp://www.whitehouse.gov/omb/budget

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The National DebtThe National Debt

is the accumulation of all yearly deficits is the accumulation of all yearly deficits minus the yearly surpluses.minus the yearly surpluses.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The National DebtThe National Debt

Example 1Example 1If the deficit in year 1 is $250 billion, and the If the deficit in year 1 is $250 billion, and the deficit in year 2 is $300, and the deficit in year deficit in year 2 is $300, and the deficit in year 3 is $200, then, assuming no other deficits or 3 is $200, then, assuming no other deficits or surpluses, the total national debt is $750.surpluses, the total national debt is $750.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The National DebtThe National Debt

Example 2Example 2If the deficit in year 1 is $350 billion, and the If the deficit in year 1 is $350 billion, and the deficit in year 2 is $200, and the surplus in year 3 deficit in year 2 is $200, and the surplus in year 3 is $100, then, assuming no other deficits or is $100, then, assuming no other deficits or surpluses, the total national debt is $___ (fill in the surpluses, the total national debt is $___ (fill in the blank).blank).

Macroeconomics

Jeopardy!Jeopardy!

The National The National Debt Debt

for $300for $300

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The National DebtThe National Debt

Answer:Answer:Approximately, (within a trillion dollars) this is Approximately, (within a trillion dollars) this is the current federal debt.the current federal debt.What is the question?What is the question?

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The National DebtThe National Debt

The question:The question:What is $15 trillion?What is $15 trillion?Click on the following national debt clock link for Click on the following national debt clock link for updates by the second.updates by the second.http://www.brillig.com/debt_clock/

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies Financing the DeficitFinancing the Deficit

The government (in the United States, it is the The government (in the United States, it is the U.S. Treasury) finances its deficits by:U.S. Treasury) finances its deficits by:1. issuing bonds to the public (very common). 1. issuing bonds to the public (very common). 2. selling assets, such as land and buildings (not 2. selling assets, such as land and buildings (not

very common).very common).

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

Budget PhilosophiesBudget Philosophies

Three common budget philosophies are:Three common budget philosophies are:1. The annually balanced budget1. The annually balanced budget2. The cyclically balanced budget2. The cyclically balanced budget3. Functional finance3. Functional finance

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

The Annually Balanced BudgetThe Annually Balanced Budget

Expenditures must equal revenue within one Expenditures must equal revenue within one fiscal year.fiscal year.

Classical economists Classical economists prefer this philosophy.prefer this philosophy.It is currently state It is currently state and county law.and county law.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies The Cyclically Balanced BudgetThe Cyclically Balanced Budget

Deficits during recessions must equal Deficits during recessions must equal surpluses during expansions.surpluses during expansions.

Keynes recommended this policy.Keynes recommended this policy.

Macroeconomics

Unit 8 - Federal Budget PoliciesUnit 8 - Federal Budget Policies

Functional FinanceFunctional Finance

Deficits and national debts are okay. The main Deficits and national debts are okay. The main objective of the government is to achieve full objective of the government is to achieve full employment.employment.

This philosophy has been This philosophy has been implemented by most industrial implemented by most industrial countries’ governments countries’ governments since WWII.since WWII.

Macroeconomics