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Fiscal Responsibility

Fiscal Responsibility. Budget Deficit and National Debt. Budget surplus - more revenue(taxes) was collected than spent Budget deficit - more money was spent than collected. Response to the Deficit. Print Money. Borrow Money.

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Fiscal Responsibility

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  1. Fiscal Responsibility

  2. Budget Deficit and National Debt

  3. Budget surplus- more revenue(taxes) was collected than spent Budget deficit- more money was spent than collected

  4. Response to the Deficit Print Money Borrow Money To avoid hyperinflation, the government borrows money to pay deficits. (pg.414 #4) Treasury bills – short term maturity: 26 weeks or less Treasury note – medium term maturity: 2 – 10 years Treasury bond – long term maturity: 30 years • The government controls the treasury and can have money printed at any time. • An increase in the money supply can cause inflation to rise. • Happened in Germany after WWI

  5. National Debt • Deficit is the amount borrowed for ONE fiscal year (October 1 – September 30). • Debt is the amount of money the government owes to bondholders.

  6. Is the debt a problem? • Government must pay interest to bondholders • The more money borrowed the more interest that must be paid. • About ¼ of the National Debt is owned by Japan, China and the U.K.

  7. Recent Deficit / Debt Problems • Clinton created a surplus. • The Bush administration planned to use the surplus to secure Social Security, provide additional medical benefits to seniors and reduce income taxes. • His plan was thwarted when the stock market slowed down, tax revenue decreased and the Terrorist Attacks of 9/11 required unexpected military spending. • The promise of healthcare and the unwillingness of Congress to raise taxes on the wealthy has created an even deeper budget deficit.

  8. Questions from Budget Allocation Activity • Why are we making seniors a priority? • Why is it costing more to pay for senior benefits? • Why are we making healthcare a priority?

  9. Why are seniors a priority?

  10. Make Up of the Federal Budget • Discretionary: Not Required by law • Housing & Community • Education • Energy, Environment • Mandatory: Required by law • Social Security • Unemployment • Medicaid • Healthcare

  11. Why is costing more and more to pay for seniors?

  12. Whose retirements are funded by the money today’s wage earners are now paying into Social Security?

  13. Social Security and Medicare Balance

  14. Why is healthcare a priority?

  15. “Don’t ever argue with me [about health]. I’ll go a hundred million or billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You got to have flour and coffee in your house. Education and health. I’ll spend the money. I may cut back some tanks. But not on health.” - Lyndon B. Johnson, 1965

  16. In Summary • Our current outlook on health care and social security cannot continue to support our growing population.

  17. What is Fiscal Policy? • The use of government spending and revenue collection to influence the economy • The federal government makes key fiscal policy decisions each year when it establishes the federal budget. • The federal government prepares a new budget for every fiscal year, which goes from October 1 to September 30.

  18. The Federal Budget Process • Federal agencies send requests for money to the Office of Management and Budget. • Office of Management and Budget works with President to create budget. President sends budget to Congress. • Congress makes changes to budget and sends new budget to President. • President signs budget into law. • OR President vetoes budget. • A. Congress overrides veto by 2/3 majority. • B. Congress and President compromise to create a new budget.

  19. Budget Hold Ups • Appropriations bills must be adopted and submitted to the President by 9/30. • Appropriations bill – a bill that authorizes a specific amount of spending by the government • If Congress cannot finish them in time, it must pass “Stopgap funding”. • If Congress and the President cannot agree on temporary funding, then the government shuts down.

  20. Needy Seniors or Greedy Geezers a.What problems do entitlement programs cause? b. Why might it be difficult for lawmakers to make changes to entitlement programs?

  21. National Budget Simulation • Go to this website: • http://tinyurl.com/fixthebudget • Work with a partner to change the budget the way you think it should be changed. (15 minutes) • Discuss as a class.

  22. Questions in Review: • Why does the federal government usually not create new money to cover a budget deficit? • What are the two possible problems with national debt? Which problem do you see as the most serious? • Why did the federal government budget show a large deficit for several years following 2001? • How did you decide to fix the budget?

  23. Homework Measuring Economic Performance Bundle on Weebly

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