What’s in This Chapter?

What is the difference between a federal budget deficit and a national debt? This unit defines each concept, and describes the relationship between a country’s deficit and its national debt.

The national debt has been the subject of many controversies in recent years. Due to the influence of John Maynard Keynes, countries became more comfortable running deficits during and after the Great Depression. Keynes recommended for governments to run deficits during recessions, and surpluses during expansions. Most countries’ central governments have run deficits nearly every fiscal year, even during expansions. The national debt in many countries has skyrocketed as a result of the 2008/2009 recession. Even today, after periods of moderate expansion, many countries’ national debts are rising at alarming rates.

Some people are not concerned about debts and deficits. Others are. How important is it for a government to balance its budget each year?