What is the difference between a budget deficit and the national debt?

What is the difference between a budget deficit and the national debt?

• A. Debt is the annual shortfall; deficit accumulates over time.
• B. A deficit is the annual shortfall; debt is the accumulation of deficits over time.
• C. Debt is a type of tax.
• D. Deficit is a government surplus.

Answer: (B)

The difference hinges on flow versus stock. A budget deficit is the annual shortfall between what the government spends and what it collects in revenue in a given year. The national debt, on the other hand, is the total amount owed, the stock of borrowing that has accumulated over time from past deficits (and any surpluses that reduced it). So deficits add to the debt year after year, and interest can push the debt higher as well. The other descriptions don’t fit: debt isn’t a tax, and a deficit isn’t a surplus.

The difference hinges on flow versus stock. A budget deficit is the annual shortfall between what the government spends and what it collects in revenue in a given year. The national debt, on the other hand, is the total amount owed, the stock of borrowing that has accumulated over time from past deficits (and any surpluses that reduced it). So deficits add to the debt year after year, and interest can push the debt higher as well.

The other descriptions don’t fit: debt isn’t a tax, and a deficit isn’t a surplus.