Chapter 11.2

Question 1

Government debt

Answer 1

The amount of money the government owes to lenders outside of the government itself

Question 2

Budget deficit

Answer 2

When a government’s expenditures are greater than tax revenues

Question 3

Budget surplus

Answer 3

When a government’s expenditures are smaller than tax revenues

Question 4

Sustainable debt

Answer 4

A level of debt where the borrowing government has enough revenues to meet its debt obligations without accumulating arrears while also allowing economic growth to continue at an acceptable level

Question 5

Debt servicing

Answer 5

The payments that must be made in order to repay the principal plus interest payments

Question 6

Costs to governments of high levels of debt

Answer 6

Debt servicing costs
Poor credit ratings
Impacts on future taxation and government spending
Increased income inequality
Lower private investment
Possibility of a debt trap
Lower economic growth

Question 7

How is the size of a government’s debt usually measured by?

Answer 7

Debt-to-GDP ratio