Question

What happens to the net public debt if the federal government operates next year with the following:

a. A budget deficit?

b. A balanced budget?

c. A budget surplus?

Short answer

a. Increased governmental debt is the result of a budgetary deficit.

b. As a result, nothing much has changed.

c. As a result, the net public debt decreases.

Step-by-step solution

Public investment.

The sum payable to the public by the government for public investments in the form of securities is referred to as a public debt.

Budget Deficit.

a. A budget deficit occurs when spending exceeds revenue or revenues, resulting in a shortfall in the budget. When the budget deficit grows, the public debt grows as well.

This is due to the fact that a budget deficit leads to a growth in public debt, as the government urges the people to invest in government securities, resulting in public debt.

Balance budget.

b. The net public debt remains unchanged in the case of a balanced budget.

This is due to the fact that in a balanced budget, revenue or receipts match spending. As a result, there is no incentive to invite investments or to clear the national debt.

As a result, nothing has changed.

Economic budget.

c. When the economy is in budget surplus, the revenue or receipts surpass the expenditures. This sets the door for the national debt to be paid off.

As a result, the net public debt falls.