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Chapter 30: Q.28 (page 742)

What is the difference between a budget deficit and the national debt?

Short Answer

Expert verified

The budget deficit and the national debt are compared in this book.

Step by step solution

01

Step 1.Concept of budget 

The term "budget deficit" refers to a scenario in which the total expenditure of the states exceeds the total revenue.

National debt can be defined as a loan taken to finance the economy's budget deficit that is repayable over time with interest.

02

Step 2. Explanation

The nature of the budget deficit and national debt is what distinguishes them. Although debt can be obtained to reduce the economy's deficit, the deficit cannot be used to repay the debt. Although debt is normally acquired to reduce the deficit, it can also increase the deficit because the loan must be repaid, and the interest on the debt must be paid in each period until the debt is repaid, increasing the economy's expenditure.

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Most popular questions from this chapter

What has been the general pattern of U.S. budget deficits in recent decades?

What is the main reason for employing expansionary fiscal policy during a recession?

Why are expenditures such as crime prevention and education typically done at the state and local level rather than at the federal level?

A government starts off with a total debt of \(3.5 billion. In year one, the government runs a deficit of \)400 million. In year two, the government runs a deficit of \(1 billion. In year three, the government runs a surplus of \)200 million. What is the total debt of the government at the end of year three?

During the Great Recession of 2008–2009, what actions would have been required of Congress and the President had a balanced budget amendment to the Constitution been ratified? What impact would that have had on the unemployment rate?
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