宏观英文课件ch15.pptVIP

In this chapter you will learn about the size of the U.S. government’s debt, and how it compares to that of other countries problems measuring the budget deficit the traditional and Ricardian views of the government debt other perspectives on the debt Indebtedness of the World’s Governments The U.S. Government Debt-GDP ratio The U.S. experience in recent years Early 1980s through early 1990s Debt-GDP ratio: 25.5% in 1980, 48.9% in 1993 Due to Reagan tax cuts, increases in defense spending entitlements Early 1990s through 2000 $290b deficit in 1992, $236b surplus in 2000 debt-GDP ratio fell to 32.5% in 2000 Due to rapid growth, stock market boom, tax hikes 2001 The return of deficits, due to Bush tax cut and economic slowdown The Fiscal Future The aging population: lower birth rates increased life expectancy retirement of Baby Boomers The Fiscal Future The number of people receiving Social Security, Medicare is growing faster than the number working, paying taxes Congressional Budget Office projections: year debt-GDP ratio 2030 40% 2040 93% 2050 206% Problems Measuring the Deficit 1. Inflation 2. Capital assets 3. Uncounted liabilities 4. The business cycle Measurement problem 1:  Inflation To see why inflation is a problem, suppose the real debt is constant, which implies a zero real deficit. In this case, the nominal debt D grows at the rate of inflation: ?D/D = ? or ?D = ? D The reported deficit (nominal) is ? D even though the real deficit is zero. Hence, should subtract ? D from the reported deficit to correct for inflation. Measurement problem 1:  Inflation Correcting the deficit for inflation can make a huge difference, especially when inflation is high. Example: In 1979, nominal deficit = $28 billion inflation = 8.6% debt = $495 billion ? D = 0.086 ? $495b = $43b real deficit = $28b ? $43b = $15b surplus Measurement problem 2:  Capital Assets Currently: deficit = change in debt Better: Capital budgetingdefici