Chapter 15 Government Debt and Budget Deficits Macroeconomics,5th Edition N.Gregory Mankiw Bilingual Teacher:Cai donghong
Chapter 15 Government Debt and Budget Deficits Macroeconomics, 5th Edition N. Gregory Mankiw Bilingual Teacher: Cai donghong
Lecture Outline 1.The size of the Government Debt O 2.Problems in Measurement 3.The Traditional View of Government Debt 4.The Ricardian View of Government Debt 5.Other Perspectives on Government Debt ●6.Conclusion
Lecture Outline ⚫ 1. The size of the Government Debt ⚫ 2. Problems in Measurement ⚫ 3. The Traditional View of Government Debt ⚫ 4. The Ricardian View of Government Debt ⚫ 5. Other Perspectives on Government Debt ⚫ 6. Conclusion
Glossary ●Capital budgeting An accounting procedure that measures both assets and liabilities. Cyclically adjusted budget deficit The budget deficit adjusted for the influence of the business cycle on government spending and tax revenue. The budget deficit that would occur if the economy's production and employment were at their natural rates,also called the full- employment budget deficit
Glossary ⚫ Capital budgeting An accounting procedure that measures both assets and liabilities. ⚫ Cyclically adjusted budget deficit The budget deficit adjusted for the influence of the business cycle on government spending and tax revenue. The budget deficit that would occur if the economy's production and employment were at their natural rates, also called the fullemployment budget deficit
●Ricardian equivalence(李嘉图等价) The theory according to which forward-looking consumers fully anticipate the future taxes implied by government debt, so that government borrowing today coupled with a tax increase in the future to repay the debt has the same effect on the economy as a tax increase today
⚫ Ricardian equivalence(李嘉图等价) The theory according to which forward-looking consumers fully anticipate the future taxes implied by government debt, so that government borrowing today coupled with a tax increase in the future to repay the debt has the same effect on the economy as a tax increase today
Summary ●l.Standard measures(标准量度)of the budget deficit are imperfect measures of fiscal policy because they do not correct for the effects of inflation,do not offset changes in government liabilities with changes in government assets,omit some liabilities altogether,and do not correct for the effects of the business cycle
Summary ⚫ 1. Standard measures (标准量度) of the budget deficit are imperfect measures of fiscal policy because they do not correct for the effects of inflation, do not offset changes in government liabilities with changes in government assets, omit some liabilities altogether, and do not correct for the effects of the business cycle
2.According to the traditional view of government debt, a debt-financed tax cut stimulates consumer spending and lowers national saving.This increase in consumer spending leads to greater aggregate demand and higher income in the short run,but it leads to a lower capital stock and lower income in the long run
⚫ 2. According to the traditional view of government debt, a debt-financed tax cut stimulates consumer spending and lowers national saving. This increase in consumer spending leads to greater aggregate demand and higher income in the short run, but it leads to a lower capital stock and lower income in the long run
3.According to the Ricardian view of government debt,a debt-financed tax cut does not stimulate consumer spending because it does not raise consumers'overall resources-it merely reschedules taxes from the present to the future. The debate between the traditional and Ricardian views of government debt is ultimately a debate over how consumers behave
3. According to the Ricardian view of government debt, a debt-financed tax cut does not stimulate consumer spending because it does not raise consumers' overall resources-it merely reschedules taxes from the present to the future. The debate between the traditional and Ricardian views of government debt is ultimately a debate over how consumers behave
Are consumers rational or shortsighted?Do they face binding borrowing constraints?Are they economically linked to future generations through altruistic bequests?Economists'views of government debt hinge on their answers to these questions
Are consumers rational or shortsighted? Do they face binding borrowing constraints? Are they economically linked to future generations through altruistic bequests? Economists' views of government debt hinge on their answers to these questions
4.Government debt can potentially have various additional effects.Large government debt or budget deficits may encourage excessively expansionary monetary policy and,therefore,lead to greater inflation. The possibility of running budget deficits may encourage politicians to unduly burden future generations when setting government spending and taxes
⚫ 4. Government debt can potentially have various additional effects. Large government debt or budget deficits may encourage excessively expansionary monetary policy and, therefore, lead to greater inflation. The possibility of running budget deficits may encourage politicians to unduly burden future generations when setting government spending and taxes
A high level of government debt may risk capital flight and diminish a nation's influence around the world. Economists differ in which of these effects they consider most important
A high level of government debt may risk capital flight and diminish a nation's influence around the world. Economists differ in which of these effects they consider most important