Control of the national (public sector) debt: Causes

Overview

Recall questions on Causes.

What you need to know

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Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is the national (public sector) debt?

   Model answer

   The cumulative total of all past budget deficits minus any surpluses, representing the total amount owed by the government at a point in time.

2. 2

   How does a budget deficit in one year affect the national debt?

   Model answer

   Each year's deficit adds to the stock of national debt, while a budget surplus reduces it.

3. 3

   What is a discretionary deficit?

   Model answer

   A deficit that results from deliberate government policy decisions to increase spending or reduce taxation.

4. 4

   Define an automatic (cyclical) deficit.

   Model answer

   A deficit that results from the operation of automatic stabilisers during economic downturns, where tax revenues fall and welfare spending rises without deliberate policy changes.

5. 5

   What is a structural deficit?

   Model answer

   The part of the budget deficit that would exist even if the economy were operating at full capacity, resulting from underlying imbalances between spending commitments and revenue-raising capacity.

6. 6

   Define a cyclical deficit.

   Model answer

   The part of the budget deficit caused by the economy operating below full capacity, which automatically disappears when the economy returns to trend output.

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