Definition of Budget Deficit

What is a "budget deficit"? What is the definition of a "budget deficit"? What does the term "budget deficit" mean?

On this site, we talk quite a bit about budget deficits and budget surpluses.

Any entity (business, corporation, individual) that sets a budget can run a budget deficit, but for this definition we will be focusing on government budget deficits.

A government (municipal, federal, etc) will set out a yearly budget. A budget will determine the amount of estimated revenues that a government can expect throughout the year, and from this, the government will determine how much money they will be able to spend on expenses.

The goal of every government is to run a balanced budget. This means that revenues would equal expenses.

Many governments (especially when we are talking about federal governments) will run deficits nearly every year.

Deficit spending occurs when a government spends more money than what they take in on an annual basis - or, on other words, expenses > revenues.

So, if the US government spends $4 trillion in a fiscal year but only takes in $3 trillion in revenues, then they will have run a $1 trillion deficit ($4 trillion in expenses - $3 trillion in revenues = $1 trillion in deficit spending).

The United States is expected to run a deficit of about $1.47 trillion this year (2010).


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