beco 1 n.
Skip this Video
Download Presentation

Loading in 2 Seconds...

play fullscreen
1 / 10

BECO 1 - PowerPoint PPT Presentation

  • Uploaded on

BECO 1. Dr. Andrew L. H. Parkes “The Federal Government’s Budget Constraint”. 卜安吉. Interest rates to Zero %. So now the Fed must use OTHER ways to “ease” credit conditions!. The Government Budget Constraint.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'BECO 1' - caitir

Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
beco 1


Dr. Andrew L. H. Parkes

“The Federal Government’s Budget Constraint”


interest rates to zero
Interest rates to Zero %

So now the Fed must use OTHER ways to “ease” credit conditions!


the government budget constraint
The Government Budget Constraint

The Constraint Abbreviations

  • G is Government Spending
  • T is Tax Revenue Income
  • D Bonds is NEWLY Issued Bonds
  • D MB is Printed Money (or Currency plus Total Reserves)

The U.S. Budget


the government budget constraint1
The Government Budget Constraint

The Constraint

G - T = D Bonds +D MB

You may not use this formula

on the test – use the words!

The U.S. Budget


government spending
Government Spending
  • Government expenditures are required of all governments.
  • Everything provided by the “public” sector of the economy.
  • Salaries of government employees, bridges, guns, roads, water pipes, sewage pipes and maintenance, defense, etc.


tax revenue income
Tax Revenue Income

Tax revenue includes any fees, assessments or taxes collected by the government.

Income taxes, utility taxes or revenue collections, tolls for highways, fees for park entrance, sales taxes, property taxes, etc.


u s treasury bills notes and bonds
U.S. Treasury Bills, Notes, and Bonds

Debt or borrowing of the government.

The U.S. has the lowest cost of borrowing, that is the least risk or lowest interest rate due to the lack of default risk.

NEW borrowing – not debt issued to cover bonds maturing which need refinancing.


change in the monetary base
Change in the Monetary Base
  • Commonly called “Printing Money”
  • When the Federal Reserve Prints currency to specifically buy bonds. (or increases the level of reserves at the Fed)

Federal Reserve Notes A Liability of the Fed


spending versus taxes
Spending versus taxes
  • Taxes – paid today
  • Bonds – taxes tomorrow (when the bonds mature)
  • Printing money leads to inflation
  • Inflation tax - $ worth less (or seignorage)

Federal Reserve Notes A Liability of the Fed


  • Investopedia explains London Interbank Offered Rate - LIBOR in plain english...
  • The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus four or five points.