Final answer:
Government budget surpluses can be used to reduce public debt or be refunded to taxpayers. A nation can run budget deficits and have its debt/GDP ratio fall if the economy grows rapidly, and the inverse is also possible with budget surpluses during a recession.
Step-by-step explanation:
Government Budget Surpluses and National Debt
When governments run budget surpluses, they have extra funds available because their revenue from taxes and other sources exceeds their spending. The surplus funds can be used to reduce public debt by paying down outstanding government bonds, notes, and bills, effectively decreasing the nation's total debt load. Alternatively, these funds could be refunded to the taxpayers, either through tax cuts or rebates, effectively returning the surplus money to the citizens.
Debt/GDP Ratio Dynamics
It is possible for a nation to run budget deficits and still have its debt-to-GDP ratio decline. This situation may occur when the economy grows at a faster rate than the increase in debt, thus shrinking the ratio. Conversely, it is also theoretically possible, though not common, for a nation to run budget surpluses and witness a rise in the debt-to-GDP ratio, especially if there is a recession causing the economy to shrink disproportionately to the reduction in debt.