Chapter 16, Problem 5AA

To determine

To choose: The term that best completes the given sentence.

Explanation of Solution

Deficit spending occurs when government expenditure exceeds what it collects in revenue within a given fiscal year. The difference comes from borrowing money, which generates debt and increases the amount of interest the government is going to pay. So, the correct answer is ‘b-exceed’.

Thus, taxes from the federal government are generally not equal to expenses. The government's expenditure is greater than its collection from taxes for most years, the government also raises the extra funds by borrowing. The government's overspending is called financing the deficit.

Economics Concept Introduction

Introduction: For a given financial year, the fed budget deficit is the sum of money that the fed government spends, subtracted by the sum of money it gets from taxes. For a financial year where the government gets/generate more revenue than its expenditure, the effect will be a surplus not a deficit.