sovereign debt

Question 1

what are the two wats in which govnt can finance an expenditure

Answer 1

finance intertemporally and intratemporally

Question 2

finance intratemporally

Answer 2

w/in time period

Question 3

finance intertemporally

Answer 3

over course of time

Question 4

if all a govnt expendtiures are financed by way of tax income, said govnt is said to run a

Answer 4

balanced budget

Question 5

deficit must be financed through what

Answer 5

issuance of new debt

Question 6

surplus can be used to

Answer 6

pay off existing debt

Question 7

two types of debt

Answer 7

makrtable and non-marketable

Question 8

marketable debt

Answer 8

securities whos ownership can be trasnferred from one entity to another and are tradeable on secondary market

Question 9

4 marketable debt types

Answer 9

bills, notes, bonds, and treasury inflation-protected securities (tips)

Question 10

non makretable debt

Answer 10

securities whose ownserhsip cannot be trasnferred from one entity to another and thus cannot be traded on a secondary market

Question 11

two non marketable debt types

Answer 11

saving bonds and governemnt account series

Question 12

government account series

Answer 12

debt govnt issues bought buy govnt itself. US govnt debt is believed to be risk free

Question 13

why do we distinguish between debt help by the public and intragovernmental debt

Answer 13

since the govnt issues debt to itself

Question 14

why not just set non marketable debt to zero

Answer 14

because it incentivizes others to buy the bonds too

Question 15

what is most US debt like

Answer 15

marketable

Question 16

what is cost of borrowing determined by

Answer 16

priamry market

Question 17

why does fed inflence interest rates

Answer 17

to influence aggregate demand

Question 18

although the current debt level is quite high, is it unprecedented

Answer 18

it is NOT unprecedented in per GDP terms

Question 19

held by public debt

Answer 19

all naitonal debt that US treasury owes to a person or entitiy that is not a SUS federal govnt agency

Question 20

intragovernmental debt

Answer 20

all national debt that the US treasury owes to another arm of the US govnt

Question 21

what is total public debt sum of

Answer 21

sum of all debt held by public and all intragovernmetal debt

Question 22

japanese interest rate is

Answer 22

zero

Question 23

why does japan borrow

Answer 23

not only to fund expenditures but it also borrows to invest

Question 24

what does the main determinant of wherth a govnts level of debt is sustainbles lie in

Answer 24

differnce between the cost of said debt and the return that is being generated with it

Question 25

unlike japan why do most govnts borrow

Answer 25

to spend, not to invest and so the main determinant is simply amount of money that is wasted on unprductive interest outlays

Question 26

when interest outlays are high

Answer 26

a large chunk of tax income is unproductive

Question 27

when interest outlays are low

Answer 27

most tax income can be sed productively

Question 28

what is problem when countries have a lot of debt

Answer 28

they tend to spend a large chunk of their tax income or unproductive interest outlays which cannot be used to fund productive programs such as infrastructure

Question 29

why is interest unproductive

Answer 29

unproductive way to spend money because you cant use it now (less IV)

Question 30

is money used to pay tax income productive

Answer 30

it is not productive/wasted

Question 31

two determinants for what you spend on interest

Answer 31

1)interest rate
2)loan costs

Question 32

is it precendented or unporecendente that the US wastes more than 1/3 of its tax income on unproductive interest outlays

Answer 32

not unprecendented but this is the highest its been in a few decades

Question 33

debt is projected to _________

Answer 33

balloon

Question 34

why is debt projected to balloon

Answer 34

b/c deficits are projected to be high

Question 35

why are deficits predicted to be high

Answer 35

deficits are projected to be high b/c debt is projected to balloon

Question 36

what is the least realistic reason the govnts debt stabilizes b/c the US

Answer 36

manages to reign in its primary deficits

Question 37

why is the problem with debt balloon/deficit rise

Answer 37

the fed i snot charged with ensuring the sustainability of the US govnt debt so there are presently no plas to significnaly lower rates

Question 38

outlook of soveriegn debt

Answer 38

although there is no immediate cause for concern, we wonder how much longer US debt will be risk free

Question 39

2012 greek default vicious cycle

Answer 39

following initial credit downgrades, rsing yields and bad credit ratings fed back into each other over the cours of multiple years until default was widely deemed inevtiable

Question 40

2012 greek default policies

Answer 40

IMF and ECB

Question 41

IMF

Answer 41

lend an artifically low rate to buy countries time

Question 42

ECB

Answer 42

deoress private borrowing costs by purchasing bonds on open market