Unit 8 - Federal Budget Policies

The Federal Budget Deficit or Surplus
is the yearly difference between federal
government expenditures
and revenues.
Macroeconomics
Unit 8 - Federal Budget Policies
 The Federal Budget Deficit or Surplus
Example 1
If government spending in year 1 is $2,500, and
government revenue is $2,000, then the deficit
in year 1 is $500.
Macroeconomics
Unit 8 - Federal Budget Policies
 The Federal Budget Deficit or Surplus
Example 2
If government spending in year 2 is $2,400, and
government revenue is $2,600, then the surplus
in year 2 is $200.
Macroeconomics
Let’s play
Jeopardy!
Federal
Deficits
for $200
Macroeconomics
Unit 8 - Federal Budget Policies

The Federal Budget Deficit or Surplus
Answer:
This, approximately, was the U.S. federal budget
deficit for the past fiscal year.
What is the question?
Macroeconomics
Unit 8 - Federal Budget Policies
 The Federal Budget Deficit or Surplus
Question:
What is $1,300 billion?
Source:
http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm
Macroeconomics
Unit 8 - Federal Budget Policies
 The Federal Budget Deficit or Surplus
Additional websites with budget
information:


http://www.cia.gov/
http://www.whitehouse.gov/omb/budget
Macroeconomics
Unit 8 - Federal Budget Policies
 The
National Debt
is the accumulation of all yearly deficits
minus the yearly surpluses.
Macroeconomics
Unit 8 - Federal Budget Policies

The National Debt
Example 1
If the deficit in year 1 is $250 billion, and the
deficit in year 2 is $300, and the deficit in year
3 is $200, then, assuming no other deficits or
surpluses, the total national debt is $750.
Macroeconomics
Unit 8 - Federal Budget Policies

The National Debt
Example 2
If the deficit in year 1 is $350 billion, and the
deficit in year 2 is $200, and the surplus in year 3
is $100, then, assuming no other deficits or
surpluses, the total national debt is $___ (fill in the
blank).
Macroeconomics
Jeopardy!
The National
Debt
for $300
Macroeconomics
Unit 8 - Federal Budget Policies
 The National Debt
Answer:
Approximately, (within a trillion dollars) this is
the current federal debt.
What is the question?
Macroeconomics
Unit 8 - Federal Budget Policies

The National Debt
The question:
What is $15 trillion?
Click on the following national debt clock link for
updates by the second.
http://www.brillig.com/debt_clock/
Macroeconomics
Unit 8 - Federal Budget Policies

Financing the Deficit
The government (in the United States, it is the
U.S. Treasury) finances its deficits by:
1. issuing bonds to the public (very common).
2. selling assets, such as land and buildings (not
very common).
Macroeconomics
Unit 8 - Federal Budget Policies

Budget Philosophies
Three common budget philosophies are:
1. The annually balanced budget
2. The cyclically balanced budget
3. Functional finance
Macroeconomics
Unit 8 - Federal Budget Policies

The Annually Balanced Budget
Expenditures must equal revenue within one
fiscal year.
Classical economists
prefer this philosophy.
It is currently state
and county law.
Macroeconomics
Unit 8 - Federal Budget Policies
 The Cyclically Balanced Budget
Deficits during recessions must equal
surpluses during expansions.
Keynes recommended this policy.
Macroeconomics
Unit 8 - Federal Budget Policies

Functional Finance
Deficits and national debts are okay. The main
objective of the government is to achieve full
employment.
This philosophy has been
implemented by most industrial
countries’ governments
since WWII.
Macroeconomics