Final answer:
An entity is a deficit spending unit when its spending exceeds its income. This is often seen in government financial practices where the government must borrow to fund its expenditures when it spends more than the tax revenue. Deficit spending has been a notable feature of many post-World War II federal budgets.
Step-by-step explanation:
An entity is considered a deficit spending unit (DSU) if its spending exceeds its income. This condition can be identified when the entity has more outflows of funds for its operations and investments than the income or revenue it generates. Deficit spending is crucial in understanding governmental financial practices where it often involves the government spending more money than what it collects as revenues, primarily through taxes.
For example, the federal government of the United States has experienced periods of deficit spending, particularly notable since World War II. Such a deficit occurs when the government's expenditure (G) exceeds the tax revenue (T), expressed as G-T > 0 within the national savings and investment identity. When a government is in deficit, it must seek additional funds to cover this shortfall, often through borrowing by issuing Treasury bonds or other means of debt.