A simple equation describing the government's budget constraint is

Question

Quizplus · Accepted Answer

The government's budget constraint can be expressed as government expenditure = tax revenue + borrowing. This equation indicates that government expenditure can be financed through tax revenue and/or borrowing, but ultimately the government cannot continue to spend beyond its means without incurring debt. Option A is incorrect because borrowing is added to tax revenue, not subtracted. Option B is incorrect because tax revenue should not be included as a negative value. Option C is incorrect for the same reason as option A. Option E is incorrect because it includes the additional factor of debt-service payments, which is not necessary to describe the basic budget constraint.

A Simple Equation Describing the Government's Budget Constraint Is