Question

Deficits occur each year that federal spending exceeds revenues collected. Alternatively, when revenues exceed spending, the federal budget runs a surplus. When the federal government runs deficits for multiple years—as we have done with only a few exceptions in the last 40 years—the deficits plus the interest incurred on that borrowing accumulate into the national debt.

a. true
b. false

Answer 1

The statement in question is true; deficits occur when federal spending exceeds revenue and result in increased national debt, demonstrated by historical instances like the 2020 economic downturn, which saw a substantial budget deficit.

Step-by-step explanation:

The statement 'Deficits occur each year that federal spending exceeds revenues collected, and when revenues exceed spending, the federal budget runs a surplus. When the federal government runs deficits for multiple years, the deficits plus the interest incurred on borrowing accumulate into the national debt' is true.

Government spending varies from year to year and can result in either a budget deficit when spending surpasses revenue, or a budget surplus when revenues are greater than spending. The cumulative effect of annual deficits, along with interest on the borrowed funds, contributes to the growing national debt. Major historical events, like wars or economic recessions, can lead to significant increases in government spending and, consequently, substantial budget deficits.

The U.S. government, for example, faced its largest budget deficit during the economic downturn in 2020, with a deficit of approximately $3.1 trillion, due to increased government spending in response to the global crisis. This illustrates how sizable deficits can emerge and how they contribute to the national debt over time.