Debts and Deficits

The UK budget deficit last year was bigger than the UK national debt

• True

• False

Over the last 50 years

• UK governments have on average run a balanced budget

• There have been more surpluses than deficits

• There has been a deficit bias

• National debt has fallen

Which of the following are arguments for paying off National Debt

• A short run boost to AD

• Reduce inter-generational unfairness

• To allow interest rates to fall

• Opportunity cost of interest payments on the debt

Governments borrow by selling

(a)  

Boris has an income of £100 000 and a debt of £500 000

Kier has an income of £20 000 and a debt £75 000

Nicola has an income of £50 but owes her mother £300

UK national debt is £2tn

Who has the biggest debt burden?

• Boris

• Kier

• Nicola

• The UK government

Budget deficits tend to rise in a recession because of

• Business bankruptcy

• Increased means tested transfer payments

• Progressive income tax

• Higher VAT receipts

Budgets that are pushed into imbalance by booms and recessions are called cyclical imbalances. When governments choose to run a budget imbalance irrespective of the position in the trade cycle this is known as

(a)  

Paying off national debt is likely to have a contractionary effect on the economy because

• G>T

• It causes crowding out

• It causes a net injection

• T>G causes a net leakage

Many economists are relaxed about the size of the UK national debt because

• Interest rates on the debt are at an all time low

• Inflation will erode the real value of the debt over time

• Pre-pandemic, the debt burden was falling

• The debt is being used to finance capital investment

The relationship between deficits and debts is

• When budget deficits get smaller, the debt gets smaller

• When budget deficits get bigger, debt rises more slowly

• When budget deficits fall to zero, the debt disappears

• When the budget deficit rises, debt rises more quickly