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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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