In public finance, the outstanding federal government debt at a point in time is equal to which of the following?

Introduction / Context:
In public finance and macroeconomics, it is essential to distinguish between the annual budget balance and the accumulated stock of government debt. Governments may run budget deficits or surpluses each year depending on how spending compares with revenue. Over time, these annual gaps build up into a total amount of debt. This question asks how to express the federal government debt in terms of past deficits and surpluses, and tests understanding of the difference between flows and stocks in government accounts.

Given Data / Assumptions:

• The term budget deficit refers to a situation where government expenditure in a given year exceeds its revenue in that year.
• A budget surplus occurs when revenue is greater than expenditure for that year.
• Federal government debt represents the accumulated borrowing that has not yet been repaid.
• The options include statements referring to single year differences, total outlays, and accumulated amounts.

Concept / Approach:
Each year, if the government runs a budget deficit, it must borrow to finance the gap between spending and revenue, adding to the stock of outstanding debt. If it runs a surplus, it can reduce existing debt by repaying some of what it previously borrowed. Therefore, the current level of government debt is equal to the sum of all past deficits minus the sum of all past surpluses, allowing for any one time adjustments. This expression recognises that debt is a stock variable built up by past flow imbalances between revenue and expenditure.

Step-by-Step Solution:
Step 1: Define a budget deficit as government spending greater than government revenue in a given year.Step 2: Define a budget surplus as government revenue greater than government spending in a given year.Step 3: Recognise that a deficit in any year requires borrowing, which increases the government outstanding debt.Step 4: Recognise that a surplus in any year can be used to repay some debt, which decreases the outstanding debt.Step 5: Combine these ideas to see that the current stock of federal government debt equals the accumulated sum of all past deficits minus the accumulated sum of all past surpluses.

Verification / Alternative check:
Public finance textbooks often present an accounting identity linking the change in government debt to the primary deficit and interest payments. Over many years, these annual changes add up, so that the total outstanding debt in the present is the result of adding each year deficit and subtracting each year surplus from an initial starting point. Graphs of government debt over time also show that periods of persistent deficits raise the debt stock, while periods of surpluses reduce it. This confirms that the correct conceptual description is the sum of past deficits minus the sum of past surpluses.

Why Other Options Are Wrong:
The annual difference between tax revenues and outlays in the current year describes the current budget deficit or surplus, not the entire accumulated debt, so option b is incorrect. The total value of all promised future benefits and expenditures is a broader concept related to implicit liabilities and is not the same as current recorded debt, so option c is incorrect. The sum of all annual outlays over time ignores revenue completely and therefore cannot represent debt, which depends on the gap between revenue and spending, so option d is wrong. Total tax revenue collected in the most recent year is just a flow of income and is unrelated to the size of the accumulated debt stock, so option e is also wrong.

Common Pitfalls:
Students sometimes confuse the deficit with the debt, thinking that the two terms are interchangeable. Another common mistake is to assume that debt is simply the result of current year borrowing rather than the cumulative result of many years of policy. To avoid these errors, it is helpful to remember that deficit is a yearly flow variable, while debt is an accumulated stock variable, and that the stock changes over time as deficits and surpluses occur.

Final Answer:
The outstanding federal government debt equals the sum of past budget deficits minus the sum of past budget surpluses.