National Debt: Let's Talk Finance!

What happens to the national debt when government outlays are greater than revenues? Is it different when the government's outlays are smaller than revenues?

a. grows; shrinks b. shrinks; grows c. grows; does not change d. does not change; shrinks

Final answer:

When government outlays are greater than revenues, the national debt grows due to increased borrowing. When outlays are less than revenues, the national debt shrinks as surplus is used to pay down debt. Hence the correct option is (a).

Explanation:

When the government's outlays, or expenditures, are greater than its revenues, generally raised through taxes, the national debt grows. This is because the government needs to borrow funds to cover the gap, which adds to the national debt.

Conversely, when the government's outlays are smaller than its revenues, it means the government is running a surplus, and the national debt shrinks, since surplus funds can be used to pay down existing debt. Thus, the correct response to the question is: a. grows; shrinks.