4.4.3 Budget Balance

• A budget surplus occurs when government spending exceeds revenue.

  False
• A balanced budget occurs when revenue equals spending.
• A budget surplus indicates that the government has a financial surplus.
• Order the factors affecting budget balance by their primary impact on revenue, spending, or both:

  1️⃣ Economic Growth (Revenue and Spending)

  2️⃣ Tax Policies (Revenue)

  3️⃣ Government Expenditure (Spending)

  4️⃣ Inflation (Revenue and Spending)

  5️⃣ Demographic Changes (Spending)
• How do tax cuts affect government revenue?

  Lower revenue
• A budget deficit leads to a decrease in government debt.

  False
• A budget surplus can help control inflation.
• A budget deficit occurs when government spending exceeds government revenue.


  True
• A budget surplus occurs when government revenue exceeds government spending
• Arrange the following factors in terms of their impact on the resulting budget balance:

  1️⃣ Economic Growth ||| Tax Policies ||| Government Expenditure ||| Inflation ||| Demographic Changes
• A budget surplus can lower interest rates.


  True
• Match the budget balance state with its impact on inflation:

  Budget Deficit ↔️ May lead to inflation

  Budget Surplus ↔️ Helps control inflation
• A budget surplus can free up funds for private investment
• Increasing taxes can move the budget balance towards a surplus.


  True
• A budget surplus can lower interest rates.


  True
• The budget balance reflects the difference between government revenue and government spending.
• Match the budget state with its definition:

  Budget Surplus ↔️ Government revenue exceeds spending

  Budget Deficit ↔️ Government spending exceeds revenue

  Balanced Budget ↔️ Government revenue equals spending
• What must the government do when it has a budget deficit?

  Borrow money
• Economic growth always leads to a budget surplus.

  False
• An aging population is likely to increase government spending on pensions.
• What happens to interest rates when the government borrows heavily due to a budget deficit?

  They increase
• Budget deficits always stimulate long-term economic growth.

  False
• Government revenue equals government spending
• What is a balanced budget?

  Revenue equals spending
• A budget deficit requires the government to borrow money.


  True
• A budget deficit leads to increased government debt
• What effect does a budget deficit have on private investment?

  Crowds out investment
• A budget deficit can stimulate short-term economic growth but hinder long-term growth.

  True
• What is one fiscal policy tool governments use to manage budget balance?

  Tax Policies
• Reducing government spending can create a budget surplus
• What is the term for the effect of higher government borrowing reducing private investment?

  Crowding Out