The government of Cloud City spent $\$ 100$ million more than it had in tax revenues this year.

What is the impact of this shortage on the budget balance and national debt in Cloud City?

Choose 1 answer:
(A) There is a budget deficit; the debt will increase
(B) There is a budget deficit; no impact on the national debt
(C) There is a balanced budget; national debt will increase

DD There is a budget surplus; national debt will decrease
(E) There is a budget surplus; no impact on the national debt

Question

The government of Cloud City spent $\$ 100$ million more than it had in tax revenues this year.

What is the impact of this shortage on the budget balance and national debt in Cloud City?

Choose 1 answer:
(A) There is a budget deficit; the debt will increase
(B) There is a budget deficit; no impact on the national debt
(C) There is a balanced budget; national debt will increase

DD There is a budget surplus; national debt will decrease
(E) There is a budget surplus; no impact on the national debt

Accepted Answer

∻Solution∻ ‖ a ⋮ Budget Deficit: When the government of Cloud City spends $100 million more than it has in tax revenues, it creates a budget deficit. ‖ ‖ b ⋮ National Debt Impact: A budget deficit means that the government needs to borrow money to cover the shortfall, which increases the national debt. ‖ ∻Answer∻ ⚹ (A) There is a budget deficit; the debt will increase ⚹ ∻Key Concept∻ ⚹ Budget Deficit and National Debt ⚹ ∻Explanation∻ ⚹ When a government spends more than its tax revenues, it results in a budget deficit. To cover this deficit, the government borrows money, which increases the national debt. ⚹◊What is the relationship between a government budget deficit and the national debt in Microeconomics⍭ Generate me a similar question◊

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