5.4 Government Deficits and the National Debt

a. Define the government budget surplus (deficit) and national debt. b. Explain the issues involved with the burden of the national debt.

• The government budget surplus (deficit) is the difference between tax revenues and government purchases plus transfer payments in a given year.
• A government adds to the national debt when it runs a budget deficit.
• A government must pay interest on its accumulated debt, thus increasing the national debt and increasingly forgoing using those funds for alternative uses. [See also LO POL-3.C on crowding out.]
• Enduring understanding POL-3: There are long-run implications of monetary and fiscal policy.