Question

If the federal government is currently running a budget deficit,

Group of answer choices

a- The national debt is getting larger.

b- Interest rates are likely to fall.

c- Government spending must be cut to balance the budget because the federal government is required by law to run a balanced budget.

d- Tax revenue is greater than expenditure on transfers and goods and services.

Answer 1

The correct answer is (a) The national debt is getting larger. A budget deficit means the federal government is spending more than it's earning in taxes, leading to borrowing and an increase in the national debt.

Step-by-step explanation:

If the federal government is currently running a budget deficit, it means that government spending exceeds tax revenue, leading to borrowing and thus an increase in the national debt. Therefore, the correct answer to the question is (a) The national debt is getting larger. The budget deficit is financed by borrowing funds, primarily through the issuance of Treasury bonds, notes, and bills. As these debt instruments grow in volume, so does the national debt. It's also important to note that contrary to option (c), the federal government is not legally required to balance its budget and can run deficits if necessary.

Additionally, a budget deficit could lead to higher interest rates as the government competes with the private sector for loanable funds, contradicting option (b). Similarly, option (d) is incorrect since a budget deficit by definition indicates tax revenue is not greater than government expenditure on transfers and goods and services.