Leaping Debt Costs Add to U.K. Government Borrowing

Surging debt interest costs forced the U.K. government to borrow more than expected in May. Finance minister Rishi Sunak remains under pressure to borrow even more as a slowing economy threatens to reduce tax revenues.—reuters.com

Answer the following questions to check your understanding of the story.

1) When is the U.K. government budget in a deficit?

The U.K. government budget is in a deficit when ______________.

a) government debt exists

b) the interest rate on the government’s debt is rising

c) the government’s receipts are insufficient to pay for its outlays

d) the economic growth rate is slowing

2) What is the outcome when the U.K. government goes to the loanable funds market to finance its current deficit?

The U.K. government’s action ______________.

a) increases the demand for loanable funds, which crowds out private investment

b) decreases the supply of loanable funds, which crowds out private investment

c) increases the demand for loanable funds, which crowds out private saving

d) increases both the supply of and demand for loanable funds and no crowding out occurs

Leaping Debt Costs Add to U.K. Government Borrowing

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