Question

"Which of the following BEST describes a government budget deficit and its impact on national debt?

A) Canada spent the amount it collected in tax revenue due to a law that requires its government to only spend what it collects in revenue, thus decreasing its national debt.

B) The United States Government brought in more tax revenue in 2015 than it spent in 2015, thus decreasing its national debt.

C) France spent more money last year than it collected in taxes, thus increasing its national debt.

D) Belgium owes money on government bonds issued in 2000, thus increasing its national debt.

Please select the correct description of a government budget deficit and its impact on national debt."

Answer 1

A government budget deficit occurs when a government's expenditures exceed its revenues, and this leads to borrowing, increasing the national debt. The correct answer that describes this relationship is C) France spent more money last year than it collected in taxes, thus increasing its national debt.

Step-by-step explanation:

When considering which of the provided options best describes a government budget deficit and its impact on national debt, we must understand each concept. A budget deficit occurs when a government spends more money than it collects in taxes. This excess spending leads to borrowing, which increases the national debt—the total amount of money a government owes.

Given the options, the correct description is: C) France spent more money last year than it collected in taxes, thus increasing its national debt. This reflects the direct relationship between budget deficits and the rising national debt when a government's expenditures surpass its revenue.

It is important to note that a nation can still run budget deficits and see its debt/GDP ratio fall if the economy grows at a faster pace than the increase in debt.

Conversely, nations can experience a rise in the debt/GDP ratio even with a budget surplus if GDP declines sharply. These nuances highlight that the impact of budget deficits and surpluses on national debt is influenced by overall economic conditions.

Therefore, the correct description is: C) France spent more money last year than it collected in taxes, thus increasing its national debt.