Question

Explain the relation between government deficit and government debt.

Answer 1

Answer:

Explanation:

A budget deficit occurs when a country, business, or an individual has spending that is greater than the revenue they receive over a specific period—usually measured as a year. When spending exceeds revenue—or income—it's called deficit spending. On a government-level, the national debt is the accumulation of each year's deficit. For a business or individual, this would be their total debt.When the revenue exceeds the spending, it creates a budget surplus. A surplus will reduce debt.

The U.S. Treasury must sell Treasury bonds, bills, and notes to raise the money to cover the deficit and fund regular government operations. This type of financing is known as public debt since these bonds are sold to the general public. Treasury debt is considered one of the most secure investments in the world because these debt securities have the backing of the U.S. government.  

In addition to the public debt, the government regularly loans money to itself. This intragovernmental debt is in the form of Government Account Series securities. Most of these funds come from the Social Security Trust Fund.  

That happened in the past when payroll taxes provided more than enough income to cover all Social Security benefits and the pot of funds grew. That's because there were more baby boomers working than there were retirees pulling benefits. However, as the number of baby boomers retiree grow, there need to be enough younger workers paying the taxes needed to cover boomer benefits.

When there is a greater demand for outgoing funds for retirees then an inflow of funds from worker's taxes, the Social Security payments will add to the deficit and the debt. To avoid this, one of three things must happen