Economic Impact of National Debt

A set of flashcards covering key economic concepts related to national debt and its implications.

National Debt

The sum of the federal government's budget deficits over time.

Budget Deficit

Occurs when government spending exceeds tax revenue in a given year.

Mandatory Spending

Spending on programs mandated by law, such as entitlement programs.

Discretionary Spending

Spending on programs that require annual appropriations from Congress.

Primary Deficit

Total budget deficit excluding net interest payment, indicating new debt accumulation.

Cyclical Deficits

Budget deficits driven by business cycles.

Structural Deficits

Budget deficits that are driven by structural factors, difficult to reduce even at full employment.

Crowding-Out Effect

Occurs when budget deficits reduce loanable funds available to the private sector, leading to higher borrowing costs.

Open Market Operations (OMOs)

A primary monetary policy tool where the Central Bank buys or sells government bonds to influence money supply and interest rates.

Debt Monetization

A policy where the Central Bank offsets higher interest rates from budget deficits by purchasing government debt.

Currency Value

Determined in the foreign exchange market, influenced by capital flows and risk-adjusted interest rates.

Income Transfer Problem

Refers to how national debt can be viewed as an issue of transferring income across generations and nations.