Question

Which statements accurately describe debts and deficits? Check all that apply. Debt is free and does not affect a government. A government's budget deficit causes debt to increase. A government's budget deficit causes debt to decrease. Debt requires a government to pay back more than it has borrowed. The deficit is the amount a government spends above what it brings in.

Answer 1

Debts and deficits are related but distinct concepts in government finance. A government's budget deficit increases its debt, which requires repayment of more than what was borrowed. The deficit represents the difference between a government's spending and revenue each year.

Step-by-step explanation:

The correct statements that accurately describe debts and deficits are:

• A government's budget deficit causes debt to increase.
• Debt requires a government to pay back more than it has borrowed.
• The deficit is the amount a government spends above what it brings in.

Debt is not free and it does affect a government. When a government's spending exceeds its revenue, it results in a budget deficit, which leads to an increase in debt over time. Debt requires the government to pay back more than it has borrowed, as it includes interest and other finance charges. On the other hand, the deficit refers to the amount a government spends above what it brings in each year.

Answer 2

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.