Distinguish Between a Budget Deficit and a Budget Surplus and Relate the Budget Deficit to the Government's Borrowing Requirment

A budget deficit occurs when government spending exceeds government revenue (G>T), as where a budget surplus occurs when government spending is less than government revenue (G<T).


When there is a persistent budget deficit which cannot be corrected by elimination government must finance the budget deficit. This is done by increasing borrowing of foreign money, resulting in a positive borrowing requirement. Known as deficit financing (deliberately running a budget deficit and borrowing money to finance the deficit). It is used to inject demand into an economy, to reduce demand-deficient unemployment.