Question

What problems does the federal debt establish, even when there is government surplus?

Explain the relationship between the federal debt and annual surplus and annual deficits.

Answer 1

Problems does the federal debt establish, even when there is government surplus :-

1. Personal income will be lower.

2.Fewer jobs and lower salaries.

3. Higher interest rates.

4. High debt and high spending won’t help the economy.

5.High-debt economies similar to America’s current state grew by one-third less than their low-debt counterparts.

6. The biggest threat to U.S. security.

RELATIONSHIP :

The national deficit (or federal deficit) is equal to government receipts minus spending for any fiscal year. It is a deficit if the outcome of that equation is negative. If the outcome of that equation is positive, we have a budget surplus.

When there is a deficit (and for several other reasons, too), the government sells bonds. The total amount of bonds outstanding is called “the national debt".

But these bonds are bought by the U.S. government itself (for funding or the savings of specific programs, or sometimes to transfer funds from one department to another - these are called “Intra-Governmental Holdings"), U.S. private individuals, U.S. businesses, and foreign entities (governments, businesses, and individuals).

The government then pays quarterly or annual interest payments on these bonds, until the bond matures. At that time, the government pays off the principal amount for which the bond was sold.