Question

Which situations result in an increase in the national debt?

A. A surplus in the federal budget

B. A balanced federal budget

C. A contractionary fiscal policy

D. An increase in the federal's budget's deficit

Answer 1

D only.

A surplus reduces (or pays down) the debt. A balanced budget leaves the debt roughly unchanged. Contractionary fiscal policy (higher taxes or lower spending) tends to reduce deficits, not increase debt. An increase in the federal budget deficit means more borrowing, which raises the national debt.