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Question
Explain the relation between government deficit and government debt.
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Solution
The relation between government deficit and government debt can be explained through the following points.
1. Government deficit is the excess of total expenditure over total receipt of the government; whereas, government debt is the amount of liability, owed by the government to the public, foreign and other institutions.
2. The term government deficit implies increase in the debt of the government. In other words, if the government continues to borrow to finance deficit, it leads to additional debt.
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