Answered: Contingent Liabilities When you take…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section18.5: Should The Government Balance Its Budget?

Problem 5QQ

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Contingent Liabilities When you take out an ordinary student loan, it is usually the case that
whoever holds that loan is given a guarantee by the U.S. government, meaning that the
government will make up any payments you skip. This is just one example of the many loan
guarantees made by the U.S. government. Such guarantees don’t show up in calculations of
government spending or in official deficit figures. Why not? Should they show up?

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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