Unit 3: Macroeconomic Policy

Lesson 13b: Other Fiscal Policy Issues and Government Debt

Outcomes - What you should learn

TOPICS

Other FP Issues

- Policy in the Great Depression
- New Keynesian and New Classical FP (does FP work?)
- Government Budget Deficits and Trade

The Federal Deficits and Debt

- Facts
- False Concerns
- Substantive Issues

OUTCOMES

Discuss the causes and government reaction to the Great Depression.

Explain the differences between the New Keynesian view of fiscal policy and the New Classical view

How does a budget deficit affect the trade deficit?.

Differentiate between the deficit and the debt.

State the relative size of the debt as a percentage of GDP and describe how that has changed in recent years.

Describe the annual interest charges on the debt, who holds the debt, and the impact of inflation on the debt.

Explain why the debt can also be considered public credit.

Identify and discuss two widely held "False Concerns" about the public debt.

Explain the "Substantive Issues" of the pubilic debt including: income distribution, economic incentives, the foreign owned debt, crowding out, and public investments.

What effects might the Social Security and Medicare programs have on the public debt?

The Glass-Steagall Act has been repealed, income inequality is increasing, and the stock market is near an all-time high. Are we in danger of another great depression?

Vice President Walter Mondale in 1984 was running for president against President Ronald Reagan. During a debate he was asked what he would do about the large trade deficit of the time. His answer was that to reduce the trade deficit we need to reduce the budget deficit and he would raise taxes to do that. He was not elected president, but explain his argument.

Will the public debt bankrupt the United States' government?

What effect would a constitutional amendment requiring the federal government balance its budget have on the effectiveness of fiscal policy? Hint:
procyclical

 

HOME

Lesson 13b