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

Continual budget deficits mean that the government is spending more money than it is bringing in through taxes and other revenue sources. This results in a shortfall that must be covered by borrowing. Over time, this borrowing adds up, increasing the national debt, which is the total amount of money that the government owes to its creditors. Therefore, choice A, national debt, is the correct answer. The balance of payments deficit (choice B) refers to a situation where a country's imports exceed its exports, and is not directly related to government budget deficits. The federal capital account (choice C) is not a commonly used term in economics, and is not related to government deficits. The money supply (choice D) can be affected by government deficits through the actions of the central bank, which may use monetary policy to manage the economy in response to fiscal policy decisions made by the government. However, the link between deficits and the money supply is not direct or automatic, so choice A is the best answer.

When the Government Runs a Continual Budget Deficit, It Increases