Governments borrow money just like people do, and just like normal people they also have to pay it back. The total value of all the money the government has borrowed and needs to pay back is called the national debt. 

Debt is built up by the government over a period of time because they often spend more than they earn through tax revenue. Every year that the government over spends, they need to borrow more from private firms, banks, and other countries in order to fund their spending in the economy.  

Having national debt is in fact very common for most countries as governments rarely earn the same as they spend. Generally speaking, national debt is therefore accepted and not a cause for major concern. The concern arises when the debt level gets too high and governments are forced to use extreme measures to reduce the debt by significantly cutting spending and increasing taxes. This then has a negative impact on the living standards of people within the country. 

what is national debt example

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Key terms:

Fiscal Surplus where the fiscal budget is positive. Government pending is less than earnings (mainly from tax)

Fiscal Deficit – where the fiscal budget is negative. Government spending is more than earnings (mainly from tax)

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