Card 50 / 53: If the government retires some of its outstanding bonds during the year, does that mean it's necessarily running a budget surplus? Explain.
Answer:
No, because in any given year, some portion of the outstanding bonds will probably mature, meaning the government will have to return the principal to those lenders. Yet the government can re-enter the bond market and borrow that same principal back again, keeping the outstanding debt at the same level (looking at just these transactions). This process can occur regardless of whether the government happens to be also running a deficit or surplus that year. Sample Partial Credit Answer No, it could be running a deficit and still have to pay off some of the existing bondholders.
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