Final answer:
Governments deal with shortfalls in tax revenue by borrowing through various means such as selling bonds or taking loans, which leads to a budget deficit. The U.S. experienced a significant deficit in 2009, due to the financial crisis, resulting in borrowing on a scale not seen since World War II. Budgets fluctuate based on policy changes and unexpected events.
Step-by-step explanation:
When governments face a shortfall in tax revenue, they must find ways to finance their spending. This often leads to running a budget deficit, which is when government spending exceeds the tax revenue collected. To manage this discrepancy, the government typically borrows money, which may include selling government bonds, taking out loans from domestic or foreign sources, or borrowing from central banks. Political corruption and mismanagement can exacerbate these financial challenges, leading to further revenue shortfalls.
All levels of government—federal, state, and local—have budgets that outline expected revenues and planned expenditures. These budgets can vary significantly over time due to policy decisions and unforeseen events, causing shifts in budgetary balance. For instance, in 2009, the U.S. government incurred its largest budget deficit at 10% of its GDP, primarily because of the global financial crisis resulting in massive borrowing similar to that during World War II.