The accumulation of annual budget shortfalls between federal revenues and expenditures is known as
Group of answer choices
a. the federal spending gap.
b. the national debt.
c. the balance of payments deficit.
d. the trade deficit.
e. the budget deficit.
The correct answer and explanation is:
The correct answer is e. the budget deficit.
A budget deficit occurs when a government’s annual expenditures exceed its revenues. In other words, it is the shortfall that results from spending more money than is collected through taxes and other sources of income. If this happens, the government must borrow money to cover the difference, typically by issuing bonds or borrowing from foreign countries.
This is a short-term fiscal imbalance, usually occurring within a single fiscal year. The budget deficit is calculated annually and can fluctuate based on government policies, economic conditions, and spending decisions. If the government continues to run annual budget deficits over several years, the accumulated total of these deficits is called the national debt.
For example, if the government spends more on defense, social programs, or infrastructure than it collects in taxes, it will have to borrow funds to make up for the gap. The budget deficit is a key indicator of a government’s fiscal health and is often used to gauge the effectiveness of economic policies. In times of economic recession or crisis, governments may deliberately increase their deficits to stimulate the economy through increased spending. However, prolonged or excessive deficits can lead to an unsustainable national debt, raising concerns about long-term fiscal sustainability.
To distinguish between terms, the national debt refers to the cumulative amount of money a government owes from past borrowing, while a budget deficit refers to the shortfall in a single fiscal year. The trade deficit and balance of payments deficit are related to the difference between imports and exports, not government spending and revenue.