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A budget deficit occurs when government spending exceeds tax revenue in a given year. The national debt is the cumulative total of all past deficits minus surpluses. Large deficits increase borrowing, raising real interest rates and potentially crowding out private investment.
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Practice Questions: Test Your Understanding
Apply what you've learned with these practice questions. These questions test your understanding of the key concepts.
Question 1 of 3
Which statement accurately describes the difference between the government budget deficit and the national debt?
The deficit is the total amount owed, while the debt is the annual shortfall.
The debt is measured annually, while the deficit is a cumulative total.
The deficit is the excess of government spending over tax revenue in a given year, while the debt is the accumulation of past deficits.
The deficit includes state and local borrowing, while the debt only includes federal borrowing.
The debt causes inflation, while the deficit causes unemployment.
Key Takeaways
- 📊Master the fundamentals: Understanding these core concepts is essential for success in AP Economics.
- ✅Practice makes perfect: Use the interactive exercises and practice questions to reinforce your understanding.