Lecture 7- the government and the macroeconomy

Definition of budget surplus deficit and balance

How do the government finance budget deficits

Does the government budget need to balance in every period

What does this debt sustainability depend on

Future taxes and expenditures

What is government debt

When did US and UK debt-GDP ratio peak

What is the percentage increase today

How much US and UK debt is owed to foreigners

The outstanding stock of bonds that have been issued in the past

• in the UK and the US, the debt-GDP ratio peaked at the end of

How does the US spend and the UK

Norway

Germany

What is the government budget constraint equation

What is total deficit defined as and what is primary deficit

How to create the intertemporal budget constraint

Step 1 suppose an economy exists for only two periods

Next do dividing and rearranging

Collect tax and spending terms on the same side of the equation

What determines how much the government can borrow

Explain how the debt-GDP ratio may fall if nominal DGP grows at a faster pace than debt

Example

What happens if the debt-GDP ratio becomes too high

Lenders worry about the ability of the governments to repay investors demand higher interest rate

What happens if a sovereign defaults

The governments declares it will not repay certain debts

Or it will repay them less than face value

Consequences of government deficits and debt

Intergenerational equity

Deficits can crowd out investment

What is generational accounting

-what does high-rising debt GDP ratios mean For future generations

Example of WW2 of what happens when the governments

What can investment be financed through

Savings from the private sector

Government saving

Saving by foreigners

What is the equation for this

What is crowding out

What happens to private and foreign savings

What des the Ricardian equivalence imply

What are the fiscal problems of the 21st century

Ageing population

Climate emergency

‘Fair society, fair economy nobody left behind

Explain the problems associated with an ageing population

Explain the problems with a climate emergency

What are the problems with a fair society, fair economy and nobody left behind

What is likley to happen to government spending and debt

Why is public spending health rising

Population ageing and rising morbidity

Advances in expensive medical technology

What is this income effect

How is the NHS finances

Could the budget be balanced