Worth: Mankiw Economics 5e 406 PART V Microeconomic Policy Debates government indebtedness is not as straightforward as it might seem. Indeed,some conomists argue that traditional measures are so misleading that they should be We then look at how government debt affects the economy. Section 15-3 de scribes the traditional view of government debt, according to which go vernmen borrowing reduces national saving and crowds out capital accumulation. This view is held by most economists and has been implicit in the discussion of fisca olicy throughout this book. Section 15-4 discusses an alternative view, called Ricardian equivalence, which is held by a small but influential minority of econo- mists. According to the Ricardian view, government debt does not influence na tional saving and capital accumulation. As we will see, the debate between the traditional and Ricardian views of government debt arises from disagreements over how consumers respond to the government's debt policy. Section 15-5 then looks at other facets of the debate over government debt. It begins by discussing whether the government should try to always balance its the effects of government debt on monetary policy, the political process, dlass budget and, if not, when a budget deficit or surplus is desirable. It also examine role of a country in the world economy. 75-1 The Size of the Government Debt Let's begin by putting the government debt in perspective. In 2001, the debt of the U.S. federal government was $3.2 trillion. If we divide this number by 276 million, the number of people in the United States, we find that each per- son's share of the government debt was about $11, 600. Obviously, this is not a trivial number--few people sneeze at $11, 600. Yet if we compare this debt to able 15-1 How Indebted Are the World's Governments? Count Government Debt as Government Debt as a Percentage of GDP a Percentage of GDP Japan 119 Ireland Belgium Finland Canada Sweden Greece Denmark United States 0066s Austria Netherlands Australia orway rtuga Source: OECD Economic Outlook. Figures are based on estimates of gross government debt and GDP for 2001 User LUKBI: Job EFFo1431: 6264_ch15: Pg 406: 28036#/eps at 100sl Wed,Feb20,20023:28User LUKBI:Job EFF01431:6264_ch15:Pg 406:28036#/eps at 100% *28036* Wed, Feb 20, 2002 3:28 PM government indebtedness is not as straightforward as it might seem. Indeed, some economists argue that traditional measures are so misleading that they should be completely ignored. We then look at how government debt affects the economy. Section 15-3 de￾scribes the traditional view of government debt, according to which government borrowing reduces national saving and crowds out capital accumulation. This view is held by most economists and has been implicit in the discussion of fiscal policy throughout this book. Section 15-4 discusses an alternative view, called Ricardian equivalence, which is held by a small but influential minority of econo￾mists.According to the Ricardian view, government debt does not influence na￾tional saving and capital accumulation. As we will see, the debate between the traditional and Ricardian views of government debt arises from disagreements over how consumers respond to the government’s debt policy. Section 15-5 then looks at other facets of the debate over government debt. It begins by discussing whether the government should try to always balance its budget and, if not, when a budget deficit or surplus is desirable. It also examines the effects of government debt on monetary policy, the political process, and the role of a country in the world economy. 15-1 The Size of the Government Debt Let’s begin by putting the government debt in perspective. In 2001, the debt of the U.S. federal government was $3.2 trillion. If we divide this number by 276 million, the number of people in the United States, we find that each per￾son’s share of the government debt was about $11,600. Obviously, this is not a trivial number—few people sneeze at $11,600.Yet if we compare this debt to 406 | PART V Microeconomic Policy Debates Country Government Debt as Country Government Debt as a Percentage of GDP a Percentage of GDP Japan 119 Ireland 54 Italy 108 Spain 53 Belgium 105 Finland 51 Canada 101 Sweden 49 Greece 100 Germany 46 Denmark 67 Austria 40 United Kingdom 64 Netherlands 27 United States 62 Australia 26 France 58 Norway 24 Portugal 55 Source: OECD Economic Outlook. Figures are based on estimates of gross government debt and GDP for 2001. How Indebted Are the World’s Governments? table 15-1