When the government runs a continual budget deficit, it increases the:
A) National debt.
B) Balance of payments deficit.
C) Federal capital account.
D) Money supply.

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it means it is spending more money than it is collecting in revenue. To finance this shortfall, the government must borrow money by issuing Treasury bonds that add to the national debt. The national debt is the total amount of money owed by the government to its creditors, both domestic and foreign. Therefore, running a continual budget deficit increases the national debt. The other options, such as B) Balance of payments deficit, C) Federal capital account, and D) Money supply, may be affected by government spending or borrowing, but they are not direct outcomes of a budget deficit.

When the Government Runs a Continual Budget Deficit, It Increases