Which of the following statements is TRUE about the difference between the public debt and the government budget deficit?
A) The public debt always increases while the government budget deficit may increase or decrease.
B) The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or a government budget surplus.
C) The public debt is a flow measure and the government budget deficit is not a flow measure.
D) There is no relationship between the public debt and the government budget deficit since one is a stock measure and the other is a flow measure.

Question

Quizplus · Accepted Answer

The public debt increases when there is a government budget deficit because the government needs to borrow money to cover its expenses that exceed its revenues. Conversely, if there is a government budget surplus, the government can use the surplus funds to pay down the public debt, potentially decreasing it. This relationship shows that public debt (a stock measure) changes based on the government's annual budget balance (a flow measure), which can either be a deficit or a surplus.

Which of the Following Statements Is TRUE About the Difference