alleryStart learning →What is the national debt?
AThe money a government owes to foreign governments only
BThe accumulated total of past annual budget deficits
CThe interest a government pays on its borrowing each year
DThe gap between government spending and taxes in one year
Answer & Solution
Correct answer: B. The accumulated total of past annual budget deficits
1. A budget deficit arises in a single year when spending exceeds tax revenue.
2. The national debt is the accumulated total of those past deficits.
3. So the deficit is a yearly flow and the debt is the stock it builds up to.
4. Interest on the debt is a yearly cost of carrying it rather than the debt itself.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.5 Achieving Macroeconomic Goals_
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