Question 30

National debt increases when deficit rises.

An increase in the national debt is primarily driven by a rise in the budget deficit, which occurs when government expenditures exceed its revenues. This deficit necessitates borrowing to finance the shortfall, thereby increasing the national debt.

A) bonds sold

Selling bonds is a method for the government to raise funds, but it does not directly cause an increase in national debt. While bonds can contribute to financing a deficit, the act of selling bonds alone does not imply that the debt has increased; it is the deficit that drives the need for bonds.

B) deficit rises

A rise in the deficit directly leads to an increase in national debt. When the government spends more than it earns, it must borrow money to cover the gap, which results in a higher national debt as the borrowed funds accumulate.

C) budget balanced

A balanced budget occurs when government revenues equal expenditures, which means there is no need to borrow money. As such, a balanced budget would not lead to an increase in national debt; rather, it would help stabilize or reduce it.

D) interest falls

While falling interest rates can reduce the cost of servicing debt, they do not inherently increase national debt. The national debt is determined by the level of borrowing, which is influenced by the budget deficit, not by the interest rates on existing debt.

Conclusion

The increase in national debt is definitively tied to rising deficits, as this indicates that the government is borrowing more to cover its expenses. Other options, such as selling bonds or having a balanced budget, do not contribute to an increase in debt, while lower interest rates may alleviate some financial burdens but do not directly affect the overall debt level.