In which of the following situations does the government run a deficit budget?

Question

In which of the following situations does the government run a deficit budget?

1. A. When the government expenditure and revenue both are zero.
2. B. When the government revenue exceeds expenditure.
3. C. When the government expenditure equals revenue.
4. D. When the government expenditure exceeds revenue. (Correct answer)

Correct Answer

Option D — When the government expenditure exceeds revenue.

Detailed Solution & Explanation

The correct answer is When the government expenditure exceeds revenue.

Key Points

• A deficit budget occurs when planned expenditure is greater than expected revenue, so the government must borrow to cover the gap.
• Revenue exceeding expenditure would instead be a surplus budget; equal amounts give a balanced budget.

Additional Information

• The three budget positions: deficit (expenditure > revenue), surplus (revenue > expenditure) and balanced (the two equal).
• India reports several deficit measures. Fiscal deficit is total expenditure minus total receipts excluding borrowings; revenue deficit is revenue expenditure minus revenue receipts; primary deficit is fiscal deficit minus interest payments.
• Deficits are financed by borrowing — from the market, the RBI, or external sources — which is why a persistent deficit raises the public debt.
• The FRBM Act, 2003 sets targets for containing the fiscal deficit as a share of GDP.