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For more information, please see full course syllabus of AP Macroeconomics
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Budget Deficits & the National Debt

  • The government savings equation is as follows Sgovernment = T – G – TR
  • T = Taxes, G = Government Purchases, TR = Government Transfers
  • Expansionary fiscal policies reduce the budget balance (increase deficit) while contractionary fiscal policies increase the budget balance (decrease deficit)
  • Many economists argue that a balanced budget amendment to the Constitution would restrict the government’s ability to enact fiscal policy during a recession
  • The National Debt in February 2014 exceeded $17.3 trillion
  • The Debt-GDP ratio is oftentimes used to determine whether debt is excessive or not
  • Implicit liabilities are not included in official debt statistics
  • The three biggest implicit liabilities of the federal government include Social Security, Medicare and Medicaid

Budget Deficits & the National Debt

Lecture Slides are screen-captured images of important points in the lecture. Students can download and print out these lecture slide images to do practice problems as well as take notes while watching the lecture.

  • Intro 0:00
  • Lesson Overview 0:07
  • The Budget Balance 1:20
    • Formula
    • Rule of Thumb
    • Generally, Contractionary Fiscal Policies Will Increase the Budget Balance
  • Cyclically Adjusted Budget Balance 9:35
    • Estimate if Real GDP was Equal to Potential Output
    • Economic Expansion
    • Contractions
  • Should the Budget Be Balanced? 11:35
    • Balanced Budget Amendment
    • Restricts a Country's Ability to Run a Budget Deficit During Recessions
    • National Debt
  • Problems of a Rising Government Debt 16:15
    • Crowding Out Effect
    • Today's Deficits Increases the Public Debt
  • Historical Debt-GDP Ratio 20:33
  • Trends in Debt-GDP Ratio 24:03
    • U.S. Trends to Run a Budget Deficit During War
    • U.S. Total Debt-GDP Ratio Exceeded 100% During Relative Peace
    • Debt Grows Larger with Projected Budget Deficits Continuing
  • Implicit Liabilities 26:35
    • Spending Promises Made by the Government
    • Three Largest Implicit Liabilities of the American Gov
    • Net Present Value of Debt
  • Example 1 29:25
  • Example 2 33:40
  • Example 3 35:28
  • Example 4 37:59