How does a persistent budget deficit affect national debt?

• A. Increases national debt and interest payments; can crowd out other spending
• B. Decreases national debt
• C. Has no effect on debt
• D. Reduces interest payments

Answer: (A)

When a government runs a persistent budget deficit, it must borrow to cover the gap between revenue and spending. Each year of borrowing adds to the total amount of debt, so the national debt grows over time. That growing debt comes with interest, so the annual interest payments rise as well. As debt service consumes a larger share of the budget, there’s less money available for other programs and investments, effectively crowding out other spending. If deficits continue, both the debt level and the cost of servicing that debt can increase, shaping higher ongoing obligations for the government. The other options (decreasing debt, having no effect, or reducing interest payments) don’t reflect how borrowing to cover deficits builds debt and pushes up interest costs.