Chapter 18 Model Apps

The Government and the Macroeconomy

Explore the models of Chapter 18 without any code. Every chart below is live: move its slider to change one part of the model and watch the curves respond, and hover over a line to read its values.

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See also: Chapter 18 Data Apps, the chapter’s data without code.

The fiscal problem of the twenty-first century

Fig. 6, the debt: projecting the debt-GDP ratio under a deficit cut

Move the slider to cut the primary deficit in every year from 2026; watch where the dashed projection ends against the dotted FY2025 level.

\[ b_t = \frac{1+i}{1+g}\,b_{t-1} + d_t \]

\[ b_t = b_{t-1} + d_t \quad \text{when } i = g \]

where \(b_t\) is the debt-GDP ratio, \(d_t\) the primary deficit ratio (CBO’s projection minus the cut), and \(i = g = 4\) percent the nominal interest rate and GDP growth.

Takeaway. With the interest rate equal to GDP growth, interest and growth cancel and the ratio simply adds up the primary deficits, so each point cut from every year’s deficit lowers the 2056 ratio by about 31 points. Without a cut, CBO’s deficits carry the ratio far above its World War II peak; a cut about the size of the average deficit, some 2 percent of GDP, holds it near its FY2025 level, and larger cuts bring it down.

Sources. Data: Office of Management and Budget, Historical Tables, Table 7.1 (debt held by the public); Congressional Budget Office, The Long-Term Budget Outlook: 2026 to 2056 (primary deficits, revenue minus spending excluding interest). Prepared files: data/ch18/fig18-2.csv, data/ch18/fig18-6.csv (see the data notes). Chart: inspired by the discussion of Fig. 18.6 in Jones (2024), Macroeconomics, 6th ed.