The statements that accurately describe debts and deficits are the following:
- A government's budget deficit causes debt to increase.
A budget deficit increases the level of public sector debt. Large deficits will cause national debt as a percentage of Gross Domestic Product to increase.
- Debt requires a government to pay back more than it has borrowed.
When governments borrow money, they must pay interest rates so they end up paying back more. Furthermore, the interest on the debt is added to the deficit each year. About 5 percent of the budget goes toward debt interest payments.
- The deficit is the amount a government spends above what it brings in.
In other words, a budget deficit is when spending exceeds income or spending is higher than income. Therefore, when income exceeds spending, it creates a budget surplus, which lowers the debt.