Teaching budget deficits and the national debt

The impact of budget deficits on the national debt are to economics what cash flow forecasts are to business studies ie a source of great confusion between students who can struggle with stock and flow concepts.

One teaching tactic is to keep it simple. I use a basic, made-up set of data to finesse a better understanding of the subtle interaction between fiscal positions and the national debt.

Then I contrast two scenarios: zero and 2.5% pa economic growth to highlight why a recession makse the task of reforming public finances so much more challenging

The graphics are on the next page…