Oct 14, 2009

I. Savings and InvestmentA. The Savings and Investment Identity

II. Deficits and DebtIII. Problems with the debt

Today’s News

The Algebra of Savings and Investment

1. GDP = C+I+G+NX expenditures = output= income

2. Ignore ROW, so Y = C+I+G3. Y – C – G = I4. Y – C – G = S5. S = Y (– T + T) – C – G6. S = (Y – T – C) + (T – G)7. Total Savings = Private Savings +

Public Savings

Where does the Federal government get its

revenues?1. Income Taxes

____%2. Social Security Taxes

____%3. Corporate Taxes

____%4. Sales Taxes

____%5. Property Taxes

____%6. Excise Taxes (gas, tobacco, alcohol)

____%7. Tariffs

____%8. Estate Taxes

____%9. How much tax revenue did the federal

government collect in FY08? $ ____

Where does the Federal government get its revenues?

(FY08)1. Income Taxes ($1,146 b)

45%2. Social Security Taxes ($900 b)

36%3. Corporate Income Taxes

($304b) 12%4. Sales Taxes ($0)5. Property Taxes ($0)6. Excise Taxes (gas, tobacco, alcohol) ($67b)

3%7. Tariffs ($28b) 1%8. Estate Taxes ($29b) 1%9. Other ($50b) 2%10. How much tax revenue did the federal

government collect in FY08? ($2,524 billion)

(Source: http://www.gpoaccess.gov/usbudget/browse.html

Where does the Federal government spend its

money?$ Amount Percent of Total

Defense

Social Security

Medicare

Medicaid

Interest

Income security

Other retirement

International

Other

Total 100%

Where does the Federal government spend its

money?$ Amount ($bil) Percent of Total

Defense $616 21%

Social Security $617 21%

Medicare $456 15%

Medicaid $201 7%

Interest $254 9%

Income security $260 9%

Other retirement $129 4%

International $29 1%

Other $421 14%

Total $2,983 100%

Federal Surplus/Deficit (G-T)

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

19

9620

0020

0420

08-1,600

-1,400

-1,200

-1,000

-800

-600

-400

-200

0

200

400

US Deficit

$ bi

llion

s

Recent Deficit/Surplus

1980

1982

1984

1986

1988

1990

1992

19

9419

9619

9820

0020

0220

0420

0620

08-1,600

-1,400

-1,200

-1,000

-800

-600

-400

-200

0

200

400

US Recent Surplus/Deficit

$ bi

llion

s

Deficit/Surplus as Share of GDP

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

19

9519

9820

0120

0420

07-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

US Deficit as Share of GDP

Recent History19

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

92

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

US Deficit as Share of GDP

Debt (not deficit)

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

19

9620

0020

0420

080

1,000

2,000

3,000

4,000

5,000

6,000

7,000

US Public Debt

$ bi

llion

s

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0%

20%

40%

60%

80%

100%

120%

US Debt as Share of GDP

19801982

19841986

19881990

1992 1994

19961998

20002002

20042006

2008

-10%

-5%

0%

5%

10%

15%

20%

25%

Revenues, Spending, Deficit % of GDPSpending

Revenues

Deficit

International Comparisons