When the federal government incurs additional debt to acquire an asset, under current budgeting procedures the deficit ______, while under capital budgeting procedures the deficit ______.
A) does not change; increases
B) increases; does not change
C) does not change; decreases
D) decreases; does not change

Question

Quizplus · Accepted Answer

Under current budgeting procedures, the cost of acquiring an asset is spread out over time through depreciation, rather than being counted in the year of purchase. Therefore, there is no immediate increase in the deficit. However, under capital budgeting procedures, the full cost of the asset is counted in the year of purchase, leading to an immediate increase in the deficit.

When the Federal Government Incurs Additional Debt to Acquire an Asset