Question

A government

A
B
C
D
deficit is the direct result of
expansionary monetary policy and low interest rates.
government expenditures surpassing revenue in a fiscal year.
a decline in investment in human capital.
a rise in average price levels over time.

Answer 1

A government deficit is the result of government expenditures surpassing revenue in a fiscal year, leading to borrowing and potential long-term economic challenges if sustained. The correct answer is option b.

Step-by-step explanation:

A government deficit occurs when government expenditures surpass revenue in a fiscal year. This annual budget shortfall requires the government to borrow money, which can be sourced from domestic or international investors. When a government persistently runs a deficit, it can lead to several economic challenges, such as reducing the availability of financial capital for private sector investment, trade imbalances, higher inflation rates, fluctuating exchange rates, and significant stress on the country's banking and financial systems.

While deficit spending might be necessary in times of unforeseen events, such as wars or economic recessions, and can be used as a fiscal policy tool to stimulate the economy, sustained patterns of large budget deficits are often harmful in the long term, leading to slower economic growth and potential financial instability.