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

Question

Quizplus · Accepted Answer

When a government runs a budget deficit, it means that its expenditures exceed its revenues. Reducing the deficit, while still maintaining a positive deficit, implies that the government is still spending more than it earns. Therefore, it will continue to borrow, causing the government debt to increase, albeit at a slower pace.

Suppose a Country Has Been Running a Persistent Government Budget