In which situation does the national debt decrease?
A) The federal government has a balanced budget
B) the federal government has a surplus in the budget
C) the federal government has an increase in the federal defecit from the previous fiscal year
D) The federal government has a decrease in the federal deficit from the previous fiscal year but still has a deficit
The correct answer is B) the federal government has a surplus in the budget.
To understand why this option leads to a decrease in the national debt, it's important to first clarify what the national debt represents. The national debt refers to the accumulated amount of money that a government owes from borrowing over time. When the federal government spends more money than it receives in revenues (i.e., it has a deficit), it must borrow money to make up the shortfall. These borrowings contribute to the national debt.
Now, let's break down the options:
A) The federal government has a balanced budget: When the federal government has a balanced budget, it means that its total revenues match its total expenditures for a given period. In this scenario, the national debt would neither increase nor decrease but instead remain stable.
B) The federal government has a surplus in the budget: A budget surplus occurs when the government's revenues exceed its expenditures. When this happens, the government can use the surplus to repay outstanding debt, which results in a decrease in the national debt.
C) The federal government has an increase in the federal deficit from the previous fiscal year: When the federal government has an increase in the deficit from the previous fiscal year, it means that it is spending more money than it is collecting. This situation leads to a higher borrowing requirement, which in turn contributes to an increase in the national debt.
D) The federal government has a decrease in the federal deficit from the previous fiscal year but still has a deficit: While a decrease in the federal deficit from the previous fiscal year indicates progress, it doesn't directly lead to a decrease in the national debt. As long as the government continues to have a deficit, it will need to borrow more money, thus adding to the national debt.
In summary, the only situation where the national debt decreases is when the federal government has a surplus in the budget (option B).