What is a budget deficit?

A budget deficit refers to a scenario where government spending exceeds government revenue during a given period, typically a fiscal year. This means that the government is spending more money than it is bringing in through taxes and other income sources. As a result, the government must borrow money or use reserves to cover the gap created by this discrepancy between income and expenditure.

The correct understanding aligns with the choice that defines a budget deficit as excess government spending over revenue. In contrast, the other options describe different financial situations.

A surplus of government funds indicates a budget surplus, where revenues surpass expenditures, and revenues equaling expenditures describes a balanced budget. The notion of cash shortages, while related to budget deficits in the sense that both involve a shortfall, does not specifically define a budget deficit but rather represents a broader financial concept that can occur under various circumstances beyond just government budgets.