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Introduction

  • The words national debt and budget deficit may seem very familiar to you.
  •  However in Macroeconomics they have a slightly different meaning than what you may be believe these words to mean.

Definitions

  • Budget deficit in Macroeconomics refers to the difference between tax revenues and government expenditures that a national government incurs in a given year.😞 
  • It is calculated by subtracting annual spending from annual revenue.
  • On the other hand, national debt in Macroeconomics refers to the accumulation of budget deficits over a period of many years, all of which add up to create the national debt.😢
  • The debt to GDP ratio is a typical measure of the severity of debt, since if a country is making just as much as its debt, it's ok.
  • A debt to GDP ratio above 100% indicates that a country owes more than it makes, and vice versa.

Conclusion

  • Thus, the National debt and budget deficits are similar in that they both refer to money owed by a government to other entities. 
  • However these terms differ in that annual budget deficits are much smaller than cumulatively calculated national debts

Fun Fact

The national debt of the United States is currently over $22 billion dollars and is projected to increase further in the future. 😱

Below is a link to the U.S debt clock that monitors the national debt along with many other debts, https://www.usdebtclock.org/ 

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