Identify the correct statement.
A)A budget deficit is a flow variable,while debt is a stock variable.
B)A budget deficit is a stock variable,while debt is a flow variable.
C)A budget deficit and debt are both stock variables.
D)The budget deficit decreases when aggregate demand decreases.
E)Debt increases when the budget deficit decreases.

Question

Quizplus · Accepted Answer

A budget deficit is based on the difference between government spending and revenue in a certain period, while debt accumulates over time and is the total amount owed by a government. Therefore, budget deficit is a flow variable as it measures changes in a period of time, while debt is a stock variable as it is the total amount of accumulated deficits over time. Choice B and C are incorrect as they mix up the definitions of stock and flow variables. Choice D is incorrect as the budget deficit can increase or decrease depending on the changes in government spending and revenue, not on aggregate demand. Choice E is incorrect as decreasing the budget deficit means reducing the amount of new debt accumulation, so debt should decrease rather than increase.

Identify the Correct Statement