Week 7
Econ 112
As we
discusse
d in
week 1,
the
federal
governme
nt
revenue
tends
FY2023 actual federal gov
revenue = $4.4 trillion
(chart estimated 4.8)
Federal government spending
FY2023 was $6.1 trillion, or
$1.7 trillion more than federal
government revenue.
So spending was
$6.1 trillion
and revenue was
4.4 trillion
4.4
-
6.1
1.7
So the government ran a deficit
of $ 1.7 trillion.
US Federal
government
deficit very
high, but
down from
pandemic
peak
Deficits are
covered by
government
borrowing,
increasing
the federal
debt
outstanding.
Cyclical
vs
Structura
l Deficit
Cyclical: automatic
In periods of economic downturn, revenues
decline and expenses increase without any
changes to government policy.
Structural: results from government
action
The use of fiscal policy tools to address
economic downturn causes government
revenues to decline and/or expenses to
increase.
The deficits
are covered
by federal
government
borrowing,
leading to
increased
debt.
• US Federal debt to GDP
We are at record-breaking debt
to GDP.
Gross vs
net US
debt
Gross vs. net debt
All the federal debt outstanding
-
Federal debt held by US federal
agencies
Net public debt
Say the Treasury sells $100m new
bonds at auction: say the Federal
Reserve buys $40m of it
Gross federal debt: add $100m
Debt held by federal agencies: add 40m
Net public debt: add $60m
Who holds the net debt?
Holders of Treasuries (%)
6%
5%
Foreign
7%
38%
9%
Pension funds
Mutual funds
Individuals and nonprofits
Banks
State and local governments
20%
Other
15%
The
foreig
n
holder
s
Total interest expense on US government debt
2012-2023
Cost of debt
How much debt
is too much
debt? How do
we determine
the answer?