Question

If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion, the federal: Choose one:

A. debt increased $1.6 trillion.
B. budget was balanced.
C. debt decreased $1.6 trillion.
D. debt was unaffected in that year.
E. budget surplus was $1.6 trillion.

Answer 1

The correct answer is A) Debt increased by $1.6 trillion

Step-by-step explanation:

To find whether the government has a surplus or a deficit, we use this simple formula:

Govt surplus/deficit = G-T

where G = government outlays, and T= government revenue or taxes.

• If G > T Government has a deficit
• if G = T Government has a balanced budget
• if G < T Government has a budget surplus

Now, we simply replace the terms

• Govt surplus/deficit = $3.8 billion - $2.2 trillion = $1.6 billion

Because in this equation G > T, the government is in deficit, the deficit equals $1.6 billion, and will have to be financed by issuing debt. Hence, debt will increase by the same amount.