Question

Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry about trade with other countries.

Total spending for the federal government of Lilliput for the last fiscal year was $24.19 billion. The country collected $22.9 billion in taxes during this same fiscal year. Assume government transfers were zero.

Based on this information, what is Lilliput's budget balance? Enter your answer to two decimal places.
budget balance: $_____________ billion

In the last fiscal year, Lilliput was running
a. a balanced budget
b. a budget deficit
c. a budget surplus

Answer 1

$ -1.29 billion
b. a budget deficit

Step-by-step explanation:

Subtracting Lilliput's federal revenues (taxes equaling $22.9 billion) from spending (expenditures equaling $24.19 billion) gives

federal revenue − federal spending − federal transfer payments = $22.9 billion − $24.19 billion = −1.29 billion

When tax revenue exceeds government spending, there is a budget surplus. When spending exceeds taxes, the country runs a budget deficit. When spending is equal to tax revenue, the budget is said to be balanced.

In this case, there is a budget deficit.