Making Sense of the Federal Budget, Debt & Deficits

Discussions of budgets, debt, and deficits often dominate our news media when it comes to Federal, State, and local government decisions and actions pertaining to providing government services and programs to citizens. These discussions tend to be shallow sound bites or accusations of one interest group or politician trying to score political points or denigrate a policy they do not support. What is usually missing is a rational, measured analysis to help citizens better understand these terms and the implications of each for our country and our economy at the federal, state, and local levels.

This unit of study is designed to bring clarity and understanding to the processes and the outcomes of government spending when it comes to budgeting, running deficits and accumulating debt.  It uses economic reasoning (the economic way of thinking) to provide students with powerful critical thinking tools they can apply to the discussion of these topics.

Organized into five lessons the unit covers the topics of; the national debt and its historic origins; government spending and federal budget allocations; sustainability of the federal debt; federal, state and local government budgeting, spending and funding; government financial accounting and reports; how rational public choices can lead to budget deficits. 

The unit targets grades 7-12 and has application across the social studies, especially in economics, civics and history courses.  The five lessons comprising the unit provide a sequencing that builds on each other, although teachers can use lessons independently if they choose not to cover the entire unit. 

Each lesson provides background information in an Essential Understandings section that teachers can use to prepare for a class discussion or presentation or they can assign it as a student reading for homework or class work.  The lessons include a student activity that incorporates the concepts of the Essential Understandings material. 

The activities engage students in problem-solving, critical thinking and group interaction that leads to a more comprehensive understanding of the issues surrounding government budgets, deficits and debts.  All activities include debriefing questions for a teacher-led discussion or student response assignment.

Lesson Outline

Lesson 1: Our National Debt

• Key Terms and Concepts:  Federal Debt; Federal Deficit; Discretionary spending; Mandatory spending; Federal Budget; Balanced Budget; Government Revenues; Taxes; Treasury notes, bills and bonds; Interest; GDP; Economic Growth
• Activity: Myth Busters – The National Debt

Lesson 2: Where Does Our Money Go?

• Key Terms and Concepts: Choice; Opportunity Cost; Scarcity; Mandatory spending; Discretionary spending; entitlement programs; Social Security; Medicare; Medicaid
• Activity: To The Penny

Lesson 3:  Is our Federal Debt Sustainable?

• Key Terms and Concepts: Debt; Deficit; Economic Growth; Expenditures; Federal Reserve; Fiscal policy; Gross Domestic Product; Inflation; Interest rate; Opportunity Cost; Revenue; Taxes; Trade-offs
• Activity: Can you fix it? The Fiscal Ship

Lesson 4:  Where are the Numbers? – Tracking the Words and Tracking the Deeds

• Key Terms and Concepts: Assets; Balance sheet; Budget; Deficit; Financial statement; Functions of money; Liabilities; Money
• Activity: Tracking the Words and Deeds

Lesson 4 Appendix:  State and City Budget and Financial Reporting

• Key Terms and Concepts: Accrual accounting; Budget; Cash accounting; Debt; Deficit; Interest
• Activity: Fiscal Health of States

Lesson 5: Debts, Deficits, and Debasement:  Using Public Choice Economics to Understand Public Debt

• Key Terms and Concepts: Decision making; Inflation; Institutions; Normative economic analysis; Positive Economic Analysis; Private choice; Public Choice Self-interest
• Activity: Public Choice in Action