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FIGURE 7 Money Growth (M2 Annual Rate) and Interest Rates (Long-Term U.S. Treasury Bonds), 1950-2002

Sources: Federal Reserve Bulletin, p. A4, Table 1.10; www.federalreserve.gov/releases/h6/hist/h6hist1.txt.

Percent of GDP

Federal Budget 1950

FIGURE 8 Government Budget Surplus or Deficit as a Percentage of Gross Domestic Product, 1950-2002

Source: http://w3.access.gpo.gov/usbudget/fy2003/spreadsheets.html.

FIGURE 8 Government Budget Surplus or Deficit as a Percentage of Gross Domestic Product, 1950-2002

Source: http://w3.access.gpo.gov/usbudget/fy2003/spreadsheets.html.

www.kowaldesign .com/budget/

This site reports the current Federal budget deficit or surplus and how it has changed since the 1950s. It also reports how the federal budget is spent.

www.brillig.com/debt_dock/

National Debt clock. This site reports the exact national debt at each point in time.

aggregate output described in the appendix to this chapter). Since then, the budget deficit at first declined to less than 3% of GDP, rose again to over 5% by 1989, and fell subsequently, leading to budget surpluses from 1999 to 2001. In the aftermath of the terrorist attacks of September 11, 2001, the budget has swung back again into deficit. What to do about budget deficits and surpluses has been the subject of legislation and bitter battles between the president and Congress in recent years.

You may have heard statements in newspapers or on TV that budget surpluses are a good thing while deficits are undesirable. We explore the accuracy of such claims in Chapters 8 and 21 by seeing how budget deficits might lead to a financial crisis as they did in Argentina in 2001. In Chapter 27, we examine why deficits might result in a higher rate of money growth, a higher rate of inflation, and higher interest rates.

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