National Debt : The State Of An Economy Essay

785 Words May 12th, 2016 4 Pages
Introduction
Before I address the question posed in this assignment as to why would the actual national debt figure be considered less informative about the state of an economy than the national debt as a proportion of GDP, I will first provide detail as to my understanding of what the national debt actually is and what it means to the citizens of the country in which they reside, in this case, the United States.
The Federal Government generates a budget surplus which is a condition where revenue exceeds expenditures. On the other hand, the Federal Government generates a budget deficit when it is in the red or more specifically, whenever it has more money in output than input. In order to make up the discrepancy and continue to sustain governmental services, the Treasury Department issues notes, bills, and bonds. The National Debt is the net accumulation of the government’s annual budget deficits. The National Debt directly affects most people in several ways. Here are some examples; the Treasury Department will increase the yields on treasury securities in order to draw new investors, this will reduce tax income the government can spend because most of it goes towards paying interest on the national debt. Soon, the act of borrowing becomes increasingly ¬¬¬complex. As the rate offered on treasury securities increases, businesses are viewed as riskier which also causes an increase in the yield on new bonds, as a result, corporations have to raise their prices to meet the…

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