Cambridge International as and a level Economics Ebook

National debt
National debt
is oft en expressed as a percentage of GDP. 
Government or public sector debt is the total debt a central 
government or the whole public sector has built up over 
time. It is connected to budget defi cits and budget surplus. 
If a government has a budget defi cit in one year it will 
add to the country’s national debt. In contrast, the extra 
revenue earned from a budget surplus can be used to pay 
off part of the national debt.
National debt: 
the total amount of government debt.
KEY TERM
Th
e national debt tends to increase during economic 
downturns as this is when government expenditure tends 
to rise at a more rapid rate than tax revenue. Th
ere may 
also be a tendency for a government to spend more than its 
SELF-ASSESSMENT TASK 
9.7
Th
e world’s super-rich in 2013 were those with 
US$30 million or more in assets apart from their main 
homes. In that year there were 167,669 such people. In 
total they controlled more than US$20 trillion in assets, 
more than the combined GDPs of the US and Germany. 
London is home to more of the super-rich than any other 
city. New York is due to overtake London by 2023 but is 
then, in turn, expected to be overtaken by Asian cities. 
Th
e number of super-rich is forecast to double in Africa 
and India and to increase by 80% in China by 2025. Th
e 
super-rich buy homes throughout the world.
1
What may attract the super-rich to a particular city?
2
Explain one advantage and one disadvantage a city 
may experience as a result of attracting more of the 
super-rich.
229
Chapter 9: The macroeconomy 

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SELF-ASSESSMENT TASK 
9.8
The Big Mac index
The Big Mac index, 
The Economist
’s gauge of 
exchange rates, off ers some food for thought. The 
index is based on the theory of purchasing power 
parity, which holds that currencies should in the 
long run adjust to rates that would make a basket 
of goods and services cost the same wherever they 
were bought. Our basket contains just one item, a 
Big Mac, since its ingredients are the same the world 
over, except in India, where the Maharaja Mac is made 
of chicken. Because buying a Big Mac in Norway, 
for instance, costs $7.80 at market exchange rates 
compared with $4.62 in America, our index suggests 
that the Norwegian krone is almost 70% overvalued.
Read the feature below and answer the questions that follow.