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Chapter 14: Q. 3 (page 319)

It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit. Why?

Short Answer

Expert verified

As a result, a fiscal deficit results to a public debt.

Step by step solution

01

Public investment.

Remember that a bigger public debt is the amount that the government owes the people for public investments in the stock market.

Deficit, on the other hand, is a budget shortfall caused by spending exceeding revenue or revenues.

02

Fiscal deficit.

In this situation, a budget deficit results in a large public debt because the government urges the public to invest in government securities, resulting in public debt.

As a result, a budget deficit leads to a public debt.

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Most popular questions from this chapter

To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." "The politician makes a simple arithmetic calculation in which he applies a higher tax rate to the total income reported by "the rich" in a previous year. He says that the government could thereby solve the deficit problem by taxing "the rich."What is the major fallacy in such a claim?

Take a look at the most recent years of data on the net public debt displayed in Figure 14-3, and then examine the most recent years of data on federal budget deficits shown in Figure 14-2. Why do you suppose that the net public debt as a percentage of GDP has grown more slowly recently than was the case between 2008 and 2015 ?

A fraction of the funds borrowed by the federal government between 2008 and 2015 were utilized to fund public investments in a number of solar power companies that produced little output and halted operations. These concerns provided no repayments to the government. In what sense might this fraction of deficit spending arguably have imposed a "burden" on future generations?

Describe the possible ways to reduce the government budget deficit.

To which key set of expenditures do you suppose that "other things being equal" definitely applies in the government's projections displayed in panel (b) of Figure 14-6? (Hint: Which types of expenses does the government often refer to as "non controllable"?)
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