Question

When government spends more than it collects by way of revenue, then what results?

• A. Budget surplus
• B. Budget deficit
• C. Capital expenditure
• D. Revenue expenditure

Hint:

A government can fund a budget deficit through borrowing, which can lead to an increase in public debt.

Answer 1

The Correct Option is B

Step 1: Understanding Budget Surplus and Deficit:
A budget surplus occurs when a government’s revenue exceeds its spending. Conversely, a budget deficit occurs when the government’s expenditures exceed its revenues.
Step 2: Analyzing the Options:
- Budget surplus: This occurs when the government collects more revenue than it spends, which is the opposite of the scenario described in the question.
- Budget deficit: This occurs when the government’s spending exceeds its revenue. It reflects the excess of government expenditure over income, which results in borrowing to cover the gap.
- Capital expenditure: This refers to government spending on long-term investments like infrastructure. While it may contribute to the deficit, it is not the result of a deficit.
- Revenue expenditure: This refers to the spending on day-to-day operations, such as salaries and maintenance. It does not directly relate to the scenario described in the question.
Step 3: Conclusion:
A budget deficit is the result when the government spends more than it collects in revenue, making option (B) the correct answer.