Chapter 18: The Impacts of Government Borrowing

These flashcards cover key vocabulary and concepts from Chapter 18 regarding the impacts of government borrowing on the economy, investment, and trade balance.

Government Borrowing

The process by which a government obtains funds from financial markets, impacting investment and trade balance.

Fiscal Policy

Government policies regarding taxation and spending to influence economic conditions.

National Saving and Investment Identity

The formula: S + (M - X) = I + (G - T) that shows the balance between savings, imports, exports, investment, government spending, and taxes.

Ricardian Equivalence

The theory suggesting that private households adjust their savings based on government borrowing, resulting in no net change in overall savings.

Twin Deficits

The simultaneous occurrence of a budget deficit and a trade deficit in a country.

Crowding Out Effect

The reduction in private investment that occurs when government borrowing absorbs available financial capital.

Exchange Rate

The value of a currency in relation to another currency, which can be affected by government borrowing and fiscal policy.

Public Investment in Physical Capital

Government spending on infrastructure and resources that enhance economic output and productivity.

Budget Deficit

The situation when government spending exceeds its revenues, leading to borrowing.

Impact of Interest Rates on Investment

Higher government borrowing leads to increased interest rates, which can discourage private physical capital investment.