Chapter23FederalDeficitsandtheNationalDebt.pptVIP

Chapter 23 Federal Deficits and the National Debt What is the purpose of this chapter? To take a closer look at the actual budgetary process that creates and finances our national debt What are the four stages of the budget process? Agency budget proposals Presidential budget submission First budget resolution Second budget resolution What is thefederal fiscal year? October 1 through September 30 What is thefederal deficit? How much money the government borrows in any given fiscal year What is thenational debt? The total amount owed by the federal government to owners of government securities How does the U.S. Treasury borrow money? By selling Treasury bills, notes, and bonds, promising to make specified interest payments and to repay the loaned funds on a given date What has been done to curb the national debt? Tax increase Spending caps Line-item veto Debt ceiling What happened to taxes in 1993? Raised the highest marginal tax rate from 31% to 36% Increased tax on gasoline by 4.3 cents per gallon What happened to spending in 1993? Reduced military spending and and cut some entitlements, including Medicare, Medicaid, and food stamps What is a debt ceiling? The legislated legal limit on the national debt What usually happens when the debt pushes against the ceiling? Congress raises the ceiling to accommodate the budget deficit What is the internal national debt? The portion of the national debt owed to a nation’s own citizens What is the external national debt? The portion of the national debt owed to foreign citizens What is the crowding-out effect? When federal government borrowing increases interest rates, the result is lower consumption and investments Can the government go bankrupt? Yes, it’s possible No, the debt need never be paid off Are we passing the debt burden to our children? Yes, especially if it continues to increase No, not as long as the debt is internally owned Does government borrowing crowd out private-sector spending? Yes, the more the gove