ECON-UA 1 Lecture 24: 24

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24
long run- deficits adds to national debt
Flow variable:
3 sources of loans for US government- US public + foreign public + foreign
governments ($Taxes + $Loans in return for US Gov. Bond) US treasury- collect taxes
and pay transfers ($Government Purchases)
*G > T Deficit = G-T = US Government Borrowing
Stock variable:
National Debt | sum of all past federal government borrowing not yet paid back sum of
all past deficits
Myths
#1 Ocial US national debt $19.8 trillion $60,000 per person (inflated figure)
about $5.5 trillions owed to US Gov itself
leaves $14.3 trillion = national debt held by public $47,000 per person
#2 Will have to be paid back one day
bond rolls over by maturity of bond
interest paid
#3 There is some maximum dollar value of debt we should never exceed
what matters is the debt ratio: (nominal)
Why is national debt a problem?
Burden of Debt
tax revenue need to collect just to pay interest on debt
interest have to be paid yearly
Debt $14.3 trillion
r 2.2%
GDP $18.6 trillion
1.7% of GDP used to pay back interest, which could be spent on improving
government infrastructure, etc
*burden because higher tax rates leads to
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