Government Budget Deficit And Public Debt Flashcards
What is a budget deficit?
This is where government spending is more than tax revenue
How is the money raised to pay for a budget deficit
By selling government bonds
Who generally buys government bonds?
Investment funds, mainly pension funds
Why are interest rates relatively low on UK government bonds?
Because they are a low risk investment
What is the best way of comparing debts between countries?
As a proportion of GDP
What is a government surplus!
This is where government spending is less than the tax revenue generated
How is debt that increases year on year without being repaid sustainable?
It is okay so long as the economic growth exceeds debt growth. Debt figures over time are also often not adjusted for inflation
In what fashion does debt increase?
Cumulatively
Why is debt expensive for the government?
Because they have to repay interest on government bonds
How do high debts affect government bonds?
It will cause their interest rate to increase, as they are seen as a riskier investment
What type of policy does high government debt usually bring about?
Austerity
What is austerity?
A type of financial prudence generally defined by an increase in the tax burden and a reduction in government expenditure to eliminate budget deficits
What are the negative consequences of austerity?
It leads to a lower wage economy and threatens economic growth
What type of inequality to high government debts bring about?
Intergenerational
What kind of cost do interest repayments on debt have for the government?
An opportunity cost
