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Answer :
Final answer:
The government budget balance is a financial measure that can result in a surplus, deficit, or a balanced budget. To calculate the government debt after a series of deficits and surpluses, you add the deficits and subtract the surpluses from any initial debt. In the example given, the government debt would be $95 billion.
Explanation:
The government budget balance refers to the financial position of a government, which can be a surplus, deficit, or balanced budget. If the government spends more than it receives in taxes, it runs a budget deficit. Conversely, if it receives more in taxes than it spends, it has a budget surplus. When spending and taxes are equal, the government has a balanced budget.
To find the government debt after a certain period during which there have been both deficits and surpluses, we sum the deficits and subtract the surpluses from the starting debt.
So, if a government runs a budget deficit of $10 billion each year for ten years, this adds up to $100 billion ($10 billion x 10 years). If it then has a surplus of $1 billion each year for five years, this subtracts $5 billion from the debt. A balanced budget for following ten years doesn't change the debt.
Considering the above information:
- 10-year deficit at $10 billion/year = $100 billion total deficit.
- 5-year surplus at $1 billion/year = $5 billion total surplus.
- 10 years with a balanced budget = $0 change in debt.
The government debt would be $100 billion - $5 billion = $95 billion.
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