Question at position 7 Which of the following is true about a country’s national debt? 4MA54It increases when the country’s government has a budget deficit.It decreases when the country’s exports exceed its imports. It is the sum of the country’s trade deficit and government budget deficit.It decreases when national savings decrease. It increases when gross domestic product increases.

Question

Question at position 7 Which of the following is true about a country’s national debt? 4MA54It increases when the country’s government has a budget deficit.It decreases when the country’s exports exceed its imports. It is the sum of the country’s trade deficit and government budget deficit.It decreases when national savings decrease. It increases when gross domestic product increases.

BlackTom AI · Accepted Answer

A government's national debt rises when it runs a budget deficit because the government must borrow to cover the shortfall between its spending and its tax revenue.

1) Relevant knowledge points and concepts
- Government budget deficit: G − T (government spending minus tax revenue). A positive deficit means the government must finance that gap by borrowing.
- National (government) debt: the accumulated stock of past government borrowing; each year's deficit adds to the stock (plus interest).
- Trade balance (exports − imports): a current-account concept; a trade deficit is financed by net capital inflows from abroad, not directly by the domestic government borrowing.
- Macro accounting identity (useful relationship): NX = S − I + (T − G), where NX is net exports. This shows interactions between savings, investment, government budget position, and net exports but does not make national debt equal to the sum of trade and budget deficits.

2) Step‑by‑step reasoning
- If the government runs a deficit in a year, it issues bonds to cover G − T. Those bond sales increase the government’s outstanding debt.
- Mathematically: Debt_t+1 = Debt_t + Deficit_t + Interest_t (showing the deficit directly increases debt).
- Trade surpluses or deficits reflect international borrowing/lending and do not automatically reduce the domestic government’s accumulated debt.
- Changes in national savings or GDP affect the economy and possibly future deficits, but do not mechanically reduce the existing stock of government debt.

3) Intermediate calculation/formula shown
- Debt_new = Debt_old + (G − T) + interest. A positive (G − T) raises Debt_new.

4) Why the correct answer is correct
- “It increases when the country’s government has a budget deficit.” A budget deficit requires borrowing, and borrowing adds to the accumulated national debt—this is the direct, mechanical relationship.

5) Why the other options are incorrect
- “It decreases when the country’s exports exceed its imports.” Exports > imports (trade surplus) affects net foreign asset position, not the government’s accumulated debt directly.
- “It is the sum of the country’s trade deficit and government budget deficit.” National debt is the accumulation of government deficits only; trade deficits are a separate external-financing flow.
- “It decreases when national savings decrease.” Lower savings typically increases the need for borrowing; it would not reduce government debt.
- “It increases when gross domestic product increases.” Higher GDP does not automatically raise absolute debt; it may lower the debt-to-GDP ratio or alter revenues, but GDP growth alone does not mechanically increase the debt stock.

Conclusion: The correct choice is “It increases when the country’s government has a budget deficit,” which matches the provided answer.

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