If the government has no debt initially, but then has annual revenues of $10 billion per year for 4 years and annual expenditures of $10.5 billion per year for 4 years, then the government has
A) a budget surplus of $0.5 billion per year and a debt of $2 billion at the end of the 4 years.
B) a budget deficit of $0.5 billion per year and a budget surplus of $2 billion at the end of the 4 years.
C) a budget deficit of $0.5 billion per year and a debt of $2 billion at the end of the 4 years.
D) a budget surplus of $0.5 billion per year and a surplus of $2 billion at the end of the 4 years.

Question

Quizplus · Accepted Answer

The government is running a deficit of $0.5 billion per year (expenditures are greater than revenues) for 4 years, which adds up to a total debt of $2 billion at the end of the 4 years (since each year the deficit adds to the overall debt). Therefore, choice C is the correct answer.

If the Government Has No Debt Initially, but Then Has