Question

Which of the following statements is TRUE about the difference between the public debt and the government budget deficit?

	The public debt always increases while the government budget deficit may increase or decrease.
	The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or a government budget surplus.
	The public debt is a flow measure and the government budget deficit is not a flow measure.
	There is no relationship between the public debt and the government budget deficit since one is a stock measure and the other is a flow measure.

Answer 1

The true statement is-

The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or government budget surplus.

Because,the public debt is the total amount borrowed by the government. Budget deficit is the amount of expenditure exceeds revenue on a yearly basis. Conversely, government budget surplus is the amount of revenue that exceeds expenditure on a yearly basis. So, when there is a budget deficit, there is a need to increase for public debt and if there is a budget surplus , there is a decrease of public debt.

And also, Government budget deficit is a flow concept where public debt is a stock.