ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is the Difference Between the Federal Budget Deficit and the Federal Government Debt? A federal budget deficit occurs when government spending outpaces revenue or the income drawn from taxes, fees, and investments. Deficits add to the national debt or federal government debt.

Detailed explanation-2: -The debt is the total amount of money the U.S. government owes. It represents the accumulation of past deficits, minus surpluses. Debt is like the balance on your credit card statement, which shows the total amount you have accrued over time.

Detailed explanation-3: -To pay for a deficit, the federal government borrows money by selling Treasury bonds, bills, and other securities. The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities.

Detailed explanation-4: -Increases in federal budget deficits affect the economy in the long run by reducing national saving (the total amount of saving by households, businesses, and governments) and hence the funds that are available for private investment in productive capital.

Detailed explanation-5: -The term government deficit implies increase in the debt of the government. In other words, if the government continues to borrow to finance deficit, it leads to additional debt.