Public Debt

Because increased government spending or tax cuts cause higher government deficits, they also contribute to a rise in total planned expenditures and aggregate demand.

Tasks:

Explain how each of the following will affect the net public debt, other things being equal:

Previously, the government operated with a balanced budget; however, recently, there has been a sudden increase in federal tax collections.

The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic Coast, and now government spending has risen substantially.

The Government National Mortgage Association, a federal government agency that purchases specific types of home mortgages, buys U.S. Treasury bonds from another government agency.