Suppose the economy is in a boom and the government is running a budget deficit. This implies the government is running a __________ and ___________ its net debt. structural deficit; increasing structural surplus; decreasing structural deficit; does not change structural surplus; increasing structural deficit; decreasing
Question
Suppose the economy is in a boom and the government is running a budget deficit. This implies the government is running a __________ and ___________ its net debt.
structural deficit; increasing
structural surplus; decreasing
structural deficit; does not change
structural surplus; increasing
structural deficit; decreasing
Solution
The correct answer is "structural deficit; increasing".
Here's why:
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A budget deficit occurs when a government spends more than it earns in revenue. This is the case in the scenario you provided, where the economy is in a boom but the government is still running a budget deficit. This implies that the government is running a structural deficit, which means that the deficit is not just a result of cyclical factors (like a recession), but is instead a fundamental imbalance in the government's budget.
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When a government runs a budget deficit, it typically has to borrow money to make up the difference between its spending and its revenue. This borrowing increases the government's net debt. So, in this scenario, the government is increasing its net debt.
Similar Questions
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