📚 Learning Guide
Calculating Budget Deficits
easy

If Faron's government transitions from a balanced budget in 2011 to a budget deficit in 2012, what is the most likely underlying cause of this change?

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Choose the Best Answer

A

Increased government spending without a corresponding increase in revenue

B

A significant rise in tax revenues due to economic growth

C

Decreased government spending leading to higher savings

D

Enhanced government efficiency reducing overall costs

Understanding the Answer

Let's break down why this is correct

Answer

When a government has a balanced budget, it means that its income from taxes and other sources is equal to its spending. If Faron's government moved to a budget deficit in 2012, it likely spent more money than it earned. This can happen for several reasons, such as increased spending on public services, a decrease in tax revenue due to an economic downturn, or unexpected expenses like natural disasters. For example, if Faron's government decided to invest heavily in building new schools but didn't raise taxes to match that spending, it would create a deficit. Overall, the shift to a budget deficit usually indicates that the government is trying to address immediate needs or challenges that require more funding than usual.

Detailed Explanation

When a government spends more money than it earns, it creates a budget deficit. Other options are incorrect because This option suggests that more tax money comes in, which would actually help balance the budget; This choice implies that spending less leads to saving money.

Key Concepts

Budget Deficits
Government Expenditures and Revenues
National Debt
Topic

Calculating Budget Deficits

Difficulty

easy level question

Cognitive Level

understand

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