How does a budget deficit affect national debt?

A budget deficit occurs when a government's expenditures exceed its revenues, requiring it to borrow money to cover the shortfall. This borrowing typically comes in the form of issuing government bonds or taking loans, which directly contributes to the national debt.

When a government operates with a budget deficit, it accumulates additional debts to finance its spending. As these deficits continue over time, they compound, leading to an increase in the total amount of national debt. Therefore, the correct perspective is that a budget deficit can lead to an increase in national debt because each deficit adds to the cumulative borrowing the government has done.

Understanding the relationship between budget deficits and national debt is crucial in macroeconomics, as persistent deficits can spark conversations about fiscal sustainability and the government's long-term financial obligations.