Chapter 5R, Problem 3MCQ

To determine

The correct option that defines the situation when a budget surplus exists.

Answer to Problem 3MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

Budget surplus refers to the condition when the government collects more tax revenue than its spending. In other words, the amount that is saved by the government by collecting more revenues and spending less is referred to as a budget surplus. Therefore, option a is correct.

Explanation for incorrect options:

b.

If tax collection is less than the spending then government faces budget deficit issues. Therefore, option b is incorrect.

c.

A negative budget balance occurs when government revenues are less than government spending. Therefore, option c is incorrect.

d.

A budget surplus means government possesses excess revenue due to which national debt can be reduced. Therefore, option d is incorrect.

e.

By using expansionary fiscal policy government will receive less tax and increase its spending due to which government may face a budget deficit problem. Therefore, option e is incorrect.

Economics Concept Introduction

Budget Surplus: A budget surplus exists when the government collects tax revenue more than the spending. In other words, government savings can be referred to as a budget surplus.