ECON 369 – Public Sector Economics

In Class Exercise Thirteen - Other Means of Financing Government Expenditures

1.  How does the government "go into debt"?

2.  What is the difference between the government's deficit and its debt?

3.  What is the difference between debt held by the public and debt held by federal accounts (intragovernmental holdings)?

4.  Explain how the Treasury and the Fed work together to "monetize the debt."

5.  Also explain how the Fed funds spending by the Federal government by holding assets (from engaging in open market operations). 

6.  Do you have any other questions over this material?

7.  Explain the argument that the national debt is NOT a burden on future generations because those who benefit from the debt pay for it.  Then critique this theory (as per Buchanan - i.e., why do bond holders not undertake the burden of the debt?).

8.  Some Keynesian's distinguish between cyclical deficits and structural deficits - what's the distinction and which kind do they considered "good" and why?

9. Explain crowding out.

10.  How does the Ricardian Equivalence Theorem critique the theory of crowding out? 

11.  According to Buchanan (and others) there is a big difference between private debt and public debt - explain.

12.  What is the difference between an "internal" and an "external" debt?  In both cases, who pays the interest on the debt? 

13.  Provide a public choice explanation for large public deficits and debts.

14. Buchanan talked about a "moral norm" that held deficits in check until the Keynesian revolution.  What did he mean by this?  What did he recommend to take its place and why?

15.  Do you have any other questions over this material?