Question

What is the relationship between a debt and a deficit?

A. A debt becomes a deficit after it has been paid.
B. A debt is the total of accumulated and unpaid deficits.
C. A debt can be paid off, whereas a deficit cannot be erased.
D. A debt is held by the borrower, whereas a deficit is held by the lender.
E. debt exists in the short-term, whereas a deficit is long-term.

Answer 1

A debt is the total of all accumulated and unpaid deficits (option B) over time, while a deficit is an excess of government expenditures over revenues in a specific fiscal year. This relationship can be captured by saying that each year's deficit contributes to the growing total debt.

Step-by-step explanation:

The relationship between a debt and a deficit is that a debt represents the total amount of money owed, which has been accumulated over time as a result of deficits. A deficit occurs when the government's expenditures exceed its revenues in a given fiscal year. Therefore, the correct option to explain the relationship between a debt and a deficit is 'B. A debt is the total of accumulated and unpaid deficits.'

For example, if you borrow $10,000 per year for each of the four years of college, your annual deficit was $10,000, whereas your accumulated debt over the four years amounts to $40,000. This illustrates that debt is an aggregation of deficits over time.

It's important to note that a debt, unlike a deficit, can be reduced or paid off over time through budget surpluses or increased revenue. On the other hand, a deficit reflects a shortfall for a specific period and only becomes part of the total debt as time goes on.