AP Macroeconomics AMSCO Guided Notes
5.4: Government Deficits and the National Debt
AP Macroeconomics Guided Notes
AMSCO 5.4 - Government Deficits and the National Debt
Essential Questions
- What are the long-run implications of monetary and fiscal policy as they pertain to the national debt?
I. Government Budgets
1. What are the two main categories of government expenditures and what do they include?
2. What are the primary sources of government revenue?
A. Budget Surpluses
1. What is a budget surplus and how is it calculated?
2. How can a government use a budget surplus to benefit the economy?
B. Budget Deficits
1. What is a budget deficit and what are the main causes of budget deficits?
2. How can budget deficits affect economic growth and private investment?
3. What are the long-run consequences of continuing budget deficits?
C. The Federal Budget
1. What percentage of the federal budget is discretionary and why does this matter for fiscal policy?
2. What are the major sources of federal revenue and what percentage of the budget goes to mandatory expenditures?
3. What factors contributed to increasing budget deficits in the early 2000s?
II. National Debt
1. What is national debt and why is it cumulative?
2. How does the debt-to-GDP ratio affect a country's ability to borrow and the value of its currency?
A. Ownership of the U.S. National Debt
1. What are the two categories of federal debt and what is the difference between them?
2. Who are the major holders of U.S. public debt and why does investor confidence matter?
B. Reducing the Debt
1. What is a debt ceiling and how has Congress used it to manage the national debt?
2. What are the main policy approaches that have been proposed to reduce the national debt?
Key Terms
balanced budget
budget surplus
budget deficit