Chapter 16, Problem 17AA

To determine

To ascertain the causes for the nation’s public debt.

Explanation of Solution

Financial debt usually rises as an effect of expenditure of government, and decreases as an impact of tax or other revenues, all of which fluctuate over the range of a fiscal year. Historically, through wars and recessions, US public debt as a percentage of gross domestic product has risen and has fallen thereafter.

In 1998, the government began to run a budget surplus- that is government revenues exceeded expenditures during the fiscal year. But after the attacks of terrorist on September 11, 2001, the federal government began spending a great deal on terrorist related activities. Also, congress, with President Bush’s approval, increased domestic spending at one of the fastest rates in U.S. history, while at the same time cutting taxes.

Economics Concept Introduction

Introduction: Each year the federal government creates new debt by issuing new securities. Whereas, it lessen burden from old debt by payment off bonds, currency, and bills and dues. The total sum of outstanding debt for the government of U.S. is called national debt or public debt.

The key goal of managing public debt is to provide financial needs of the government and its payment commitments held at the minimum cost in the accordance with a reasonable degree of risk.