CGFM Exam 1 – Governmental Environment Practice Exam

A deficit in governmental terms is defined as a situation where expenditures exceed revenues. This means that the government is spending more money than it is receiving in income, typically through taxes and other revenues. This financial condition leads to the need for borrowing to cover the shortfall, which can result in increased public debt.

The concept of a deficit is crucial for understanding fiscal management as it can have significant implications for government policy and economic stability. A persistent deficit may signal the need for budgetary adjustments, such as cutting expenses or increasing revenues, to achieve a more sustainable financial position.

In contrast, when revenues exceed expenditures, the government is running a surplus, which allows it to save or invest in various projects. A balanced budget occurs when revenues equal expenditures, indicating efficient fiscal management. The option regarding taxes not being collected refers more to the revenue side of the budget rather than directly defining a deficit.