Budget Deficit

Question 1

What is the Budget Deficit?

Answer 1

• Is the annual amount the government has to borrow to meet the shortfall between current receipts (tax) and government spending.

Question 2

What was the UK’s net borrowing in 2016/17?

Answer 2

£45 billion (2.3% of GDP)

Question 3

What is National Debt or Public Sector Debt?

Answer 3

Is the total amount the government owes.

Question 4

What was the National Debt in September 2017?

Answer 4

£1,737 billion or 86.5% of GDP

Question 5

What is a Cyclical Budget Deficit?

Answer 5

• Takes into account fluctuations of tax revenue and spending due to the economic cycle.
• For example, in a recession, tax revenues fall and spending on unemployment benefits increases.

Question 6

What is a Structural Deficit?

Answer 6

• Is the level of deficit even when the economy is at full employment

Question 7

What is a Primary Budget Balance?

Answer 7

• Means we take away interest payments on debt.

Question 8

What is the Current Budget?

Answer 8

• The current budget is a summary of net cash flows at that particular time.

Question 9

What is Net Borrowing?

Answer 9

• It includes net investment and is considered to be the main deficit figure.

Question 10

What is PSNB (Public Sector Net Borrowing)?

Answer 10

• Another measure of annual borrowing

Question 11

What is PSNCR (Public Sector Net Cash Requirement)?

Answer 11

• Is another measure of annual government borrowing.

Question 12

What is debt interest payments?

Answer 12

• the cost of paying interest on government debt to bondholders.

Question 13

What is Net Borrowing?

Answer 13

• Is the current budget plus net investment.

- Is considered the main figure for the government deficit

Question 14

Why did Net Borrowing peak 2009/10?

Answer 14

• Financial crisis which lead to falling tax revenues
• Expansionary fiscal policy including VAT
• Higher spending on unemployment benefits during the recession.
• Long-term spending commitments

Question 15

Factors that affect the size of a budget deficit.

Answer 15

• Economic Cycle
  >During a recession there will be an increase in budget deficit.
• Level of Interest Payments
  >Higher bond yields (amount of money an investor can expect to be payed) will increase interest payments and the budget deficit.
• One off receipts
  >Government budget payments may be improved by one off payments
• Structural Deficit
  >If the government commit to structural investment there will be higher borrowing
• Fiscal Policy
  >Expansionary Fiscal Policy includes higher spending and lower taxes which increases the deficit.

Question 16

What are the effects of a Budget Deficit?

Answer 16

• Rise in national debt

- Higher borrowing leads to increase in aggregate demand

Question 17

What is the Primary Budget Deficit?

Answer 17

This is the deficit – excluding debt interest payment.

Question 18

What is the Total Debt? (Word Definition)

Answer 18

• Shows the total amount that the government owe, accumulated over many years. This is referred to as PUBLIC SECTOR NET DEBT or NATIONAL DEBT.

Question 19

What is the Trade Deficit? (Word Definition)

Answer 19

This occurs when imports are greater than exports.