Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The national debt will increase due to higher expenditures than revenues.
B
The national debt will decrease as spending lessens.
C
There will be no impact on the national debt as revenues will catch up.
D
The national debt will remain stable since the budget was balanced previously.
Understanding the Answer
Let's break down why this is correct
Answer
When a government has a balanced budget, it means that its spending equals its income, so it does not borrow money. However, if Faron's government shifts to a deficit in 2012, it will be spending more than it earns in income. This situation usually leads to the government borrowing money to cover the gap between income and expenses, which increases its national debt. For example, if Faron spends $1 million but only earns $800,000, it will need to borrow $200,000, adding to the national debt. Therefore, the most likely impact of the transition to a deficit is that Faron's national debt will increase.
Detailed Explanation
When a government spends more money than it earns, it borrows money. Other options are incorrect because This answer suggests that spending less will happen, but a deficit means spending is higher; This option assumes that future income will fix the problem.
Key Concepts
Budget Deficits
National Debt
Fiscal Policy
Topic
Calculating Budget Deficits
Difficulty
easy level question
Cognitive Level
understand
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