Control Of The National Debt

Question 1

Budget/fiscal deficit

Answer 1

The amount that a government must borrow in a tax year because government spending amounts to more than the total tax revenue and other sources of government income

Question 2

What is national debt

Answer 2

The total of all unpaid government borrowing from previous years, including unpaid interest which has accrued on that borrowing

Question 3

What is a cyclical budget deficit

Answer 3

A budget which increases during a recession, but falls away in a boom is a cyclical deficit. In LR the govt should run a balanced bidget

Question 4

What is a structural budget deficit

Answer 4

A deficit which exists independently of the business cycle

Question 5

Why are high levels a debt a concern for govt

Answer 5

Opportunity cost of interest payments
Risk of credit downgrades (future borrowing more expensive if they are deemed unreliable)
confidence issues surrounding cost of refinancing (consumer may be concerned about the value they’re getting from their tax payments)
May lead to crowding out, because high G means more borrowing, so IRs up and so slower growth as less Investment

Question 6

Solutions to national debt

Answer 6

Austerity measures (contractionary fiscal policy) In 2010, UK embarked on austerity, but national debt as a percentage of GDP has only increased since then
Demand side stimulus (increase in AD to improve consumer confidence, so more C, thus more VAT revenue and more jobs created) - how far do govt have control over this?
Default on loans - no longer need to pay back loans, national debt is reset

Question 7

What causes fiscal deficits

Answer 7

Automatic or discretionary government policy