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Impact of federal deficits

Dianne Keenan and Mark Maier from Economics Live! Learning Economics the Collaborative Way
Author Profile
This material was originally created for Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.

Summary

Based on a fable about King Big Debt, students analyze four endings that summarize the possible impact of government debt: crowding out, Keynesian stimulus spending, external debt and monetized debt.

Learning Goals

Federal deficit, crowding out, monetized debt, external debt, deficit spending

Context for Use

Appropriate for introductory macroeconomics course

Description and Teaching Materials

King Big Debt introduction
Fable start (Acrobat (PDF) 77kB Aug15 12)
King big debt part 2
Fable endings (Acrobat (PDF) 63kB Aug15 12)
Follow-up questions (Microsoft Word 20kB Jul29 12)

Teaching Notes and Tips

It is important for students to take their time analyzing each fable ending. Rather than simply aim for the correct answers, students should be able to explain how the answer represents the identified ending.

Assessment

Based on the activity, should be able to identify which theories about government deficits apply to the current US economy.

The followup questions can be used for assessment:

1. Which ending is most inflationary?

2. Which do you think would have the most negative effects on the economy? Why?

3. Which ending most closely resembles the U.S. economy today? Why?

References and Resources

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