ABSTRACT
The deficit, or the excess of government expenditures over its revenues, is the amount of new borrowing the government must undertake in a year; the debt is the accumulation of all past deficits. Most of the government debt is in the form of Treasury securities such as Treasury bills, Treasury notes, and Treasury bonds. The size of the public debt relative to the size of US economy has shown fairly dramatic movement since World War II. Economic theory says that under certain circumstances the average maturity of the debt is irrelevant for economic welfare. In this case debt management policy is neutral with respect to the economy. The yield curve conveniently summarizes the relationship between the term to maturity of government debt and the interest rate. This relationship between yield and maturity is called the term structure of interest rates. A confidence crisis could occur if government bondholders thought that the government might have difficulty making payments on the debt.
