Question

Explain how federal government budget deficits occur and define the public debt.

Short answer

The government has run a deficit and can need to borrow money. Whenever a government runs a deficit, it adds to its long-term debt.

Step-by-step solution

Definition

When a government's expenditures on goods, services, or transfer payments exceed theirrevenue,the govt has run adeficit. Governments borrow money toacquire budget deficits, and whenever a government borrows money, this adds to itsdebt.

Deficit and debt

Budget deficit - when a government spends more on goods, services, and transfer payments than it collects in tax revenues; budget deficits raise the debt
Public debt - the accumulated amount of cash that a government owes to its creditors because the results of running budget deficits