Suppose a country has been running a persistent government budget deficit. If the deficit is reduced, but remains positive,
A) the country will experience a budget surplus.
B) government debt will decrease.
C) government debt will increase.
D) interest payments on the debt immediately will decrease.

Question

Quizplus · Accepted Answer

Government debt will still increase despite the reduction in the deficit because the deficit is still positive. A deficit represents the amount by which government expenses exceed revenues in a given period, whereas government debt represents the cumulative amount of past deficits minus any surpluses. Therefore, even if the deficit is reduced, the government is still adding to its outstanding debt.

Suppose a Country Has Been Running a Persistent Government Budget