What characterizes a budget deficit?

A budget deficit is characterized by a situation where expenditures exceed revenue. This indicates that an entity, such as a government, is spending more money than it is bringing in through various sources of income, such as taxes and fees. A budget deficit typically requires the entity to borrow money to cover the shortfall, which can lead to increased debt levels over time. This scenario is often assessed in the context of fiscal policy, as it can impact a government's ability to fund public services and invest in infrastructure.

In contrast, when income exceeds expenditures, it results in a budget surplus, which can be used to pay down debt or reinvest in programs. A balanced budget occurs when expenditures and revenue are equal, meaning there is neither a surplus nor a deficit. Government surpluses refer specifically to situations in which revenue surpasses expenditures, allowing for the buildup of financial reserves. Thus, understanding a budget deficit is crucial in evaluating financial health, particularly for governments managing public resources.