What is budget deficit?

• A. A surplus of revenue over spending
• B. A government's annual profit
• C. The cash balance
• D. The amount by which government spending exceeds government revenue in a fiscal year

Answer: (D)

A budget deficit is the shortfall that occurs when government spending exceeds revenue in a fiscal year. It’s a flow concept, measured over a period, and the deficit equals the amount by which spending outpaces revenue. This is why the correct option describes the exact gap between what the government spends and what it brings in over that year.

The other ideas don’t fit as well. A surplus means revenue is greater than spending, the opposite of a deficit. The notion of an annual profit isn’t appropriate for a government, since governments don’t operate to earn profits like a business. The cash balance can relate to the available cash at a moment in time and isn’t specifically defined as the annual gap between spending and revenue.