Analyze the relationship between the federal budget and national debt. Explain how a federal budget deficit and a federal budget surplus influence levels of national debt.
The federal budget and national debt are closely related. The federal budget is the government's plan for spending and revenue for a given fiscal year, while the national debt is the sum of all past borrowing by the federal government.
When a federal budget deficit occurs, it means that the government spends more money than it takes in from taxes and other sources of revenue. To make up for this shortfall in revenue, the government must borrow money by issuing Treasury bonds or other debt securities. This borrowing adds to the national debt, increasing the overall amount owed by the government.
On the other hand, when there is a federal budget surplus, it means that the government takes in more money than it spends. This surplus can be used to pay down some of the national debt, reducing the overall amount owed by the government.
In summary, a federal budget deficit leads to an increase in the national debt, while a federal budget surplus can help to reduce the national debt. It is important for the government to maintain a balance between spending and revenue in order to keep the national debt at a sustainable level.