What occurs when the government spends more money than it collects in revenue?

When the government spends more money than it collects in revenue, it creates a situation known as a deficit. A deficit occurs when expenses exceed income over a specific period, prompting the government to borrow money to cover the shortfall. This borrowing can lead to an increase in national debt over time, as the government has to finance its operations without enough revenue.

In the context of fiscal policy, a deficit can arise from various factors, including increased government spending on programs, tax cuts that reduce revenue, or lower economic activity that leads to diminished tax collection. Understanding deficits is crucial for analyzing a government's financial health and its ability to fund public services without relying heavily on borrowing.

In contrast, other terms do not accurately describe this scenario. A surplus refers to when revenue exceeds expenditures, equilibrium suggests a balance between income and expenses, and a recession is an economic downturn characterized by reduced economic activity, unemployment, and typically lower tax revenues, but it does not specifically address the balance of government revenue and spending.