A budget surplus occurs when

revenue is greater than spending. The government collects more than it spends.

Revenue is $500 billion and spending is $540 billion. What is the budget position?

a deficit of $40 billion. Spending is $40 billion more than revenue.

How does a government usually pay for a budget deficit?

by borrowing. Borrowing covers the gap, and adds to the national debt.

Which is a main area of government spending?

healthcare. Health, education, defence and welfare are the big ones.

What is the national debt?

the total amount the government owes from past borrowing. Each year's deficit adds to it.

The government budget · Cambridge IGCSE Economics revision

In plain words

A government has an income and it has bills, just as a household does. Its income is mostly tax. Its bills are for hospitals, schools, pensions, roads and soldiers. The budget sets the two side by side.

If it plans to spend more than it collects, it has to borrow the difference.

5 things to know

The government budget is its plan for revenue and spending over a year.
A budget deficit (also called a fiscal deficit) is when government spending is greater than government revenue. A budget surplus is when revenue is greater than spending.
A deficit is paid for by borrowing, which adds to the national debt, and interest must be paid on that debt.
The main areas of government spending: health, education, defence, welfare benefits and pensions, and infrastructure such as roads.
Reasons for spending: to provide public goods and merit goods, to support people on low incomes, and to influence total demand in the economy.

Worked example

A government collects $420 billion in revenue and spends $455 billion. What is the budget position?

Compare the two: spending (455) is greater than revenue (420).
Spending greater than revenue is a deficit.
Deficit = 455 − 420 = $35 billion.

Tips and tricks

Deficit and debt are different. The deficit is this year's shortfall. The national debt is the total owed from all the years of borrowing.
A deficit is not always a mistake. A government may borrow on purpose, to spend more in a recession.

5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

The government budget: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

A budget surplus occurs when
- spending is greater than revenue
- revenue is greater than spending (the answer)
- spending equals revenue
- exports are greater than imports
The government collects more than it spends.
Revenue is $500 billion and spending is $540 billion. What is the budget position?
- a surplus of $40 billion
- a deficit of $40 billion (the answer)
- a surplus of $1040 billion
- balanced
Spending is $40 billion more than revenue.
How does a government usually pay for a budget deficit?
- by printing free goods
- by borrowing (the answer)
- by cutting exports
- by reducing the population
Borrowing covers the gap, and adds to the national debt.
Which is a main area of government spending?
- company profits
- healthcare (the answer)
- household savings
- imports of luxury cars
Health, education, defence and welfare are the big ones.
What is the national debt?
- this year's budget deficit
- the total amount the government owes from past borrowing (the answer)
- the amount households owe to banks
- the value of imports
Each year's deficit adds to it.

5 questions

Tap an answer and you’ll see straight away whether it’s right, and why.

Worksheet

3 questions, 7 marks. Write your answers on paper, then check them.

The government budget

Cambridge IGCSE Economics 0455 · 7 marks · papermunch.org

Name ______________________________ Date ______________

Define a budget deficit.[2]
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A situation where government spending is greater than government revenue in a year.
I got this one
A government's revenue is $310 billion and its spending is $295 billion. Calculate its budget surplus or deficit.[2]
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A surplus of $15 billion. 310 − 295.
I got this one
Explain two reasons why governments spend money on education.[3]
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Education is a merit good that would be under-consumed if people had to pay the full price. It also raises the skills and productivity of the future workforce, which helps the economy grow.
I got this one

Answers: The government budget

1. A situation where government spending is greater than government revenue in a year.
2. A surplus of $15 billion. 310 − 295.
3. Education is a merit good that would be under-consumed if people had to pay the full price. It also raises the skills and productivity of the future workforce, which helps the economy grow.