Which of the following budgets will increase government expenditure?

A. zero base budget
B. surplus budget
C. deficit budget
D. balanced policy

Correct Answer:

Option C – deficit budget

Explanation

A budget deficit is the annual shortfall between government spending and tax revenue. The deficit is the annual amount the government need to borrow to balance up the budget. When the government borrows, it offers to pay interest payment to those who the money was borrowed. The deficit is also funded by selling government bonds to private sector to do this, the government offers to pay an interest payment to those who buy the bonds. The interest rate attracts investors to lend the government money.