1. Understanding the difference between “deficit” and “debt”

2. Let’s say a government spends $ 100 per year and earns 75 % per year.
The difference between spends and revenue is the deficit
(i.e = 25)
So in the above example $25 is the deficit
We can also say that for every dollar spent 25% is borrowed

3. So how does the government finance this deficit?
It does so by borrowing
the $25 needed to finance its spending.
This is done by issuing “Bonds”

4. The aggregate borrowing at any point in time is known as “DEBT”
Then what is debt?
Every year the government borrows to finance its deficit as shown in the previous slide
The aggregate borrowing at any point in time is known as “DEBT”
DEFICIT =
DEBT

5. Let’s say the past debt was $1000
The deficit of $25 needs to be added to $1000 to arrive at the cumulative debt.
Cumulative debt therefore is $1000+$25=$1025

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Hope this story has further clarified the difference between “deficit” and “debt”
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