HISET Social Studies Practice

What is 'Deficit Spending'?

1. The practice of maintaining a balanced budget

2. Spending less than government revenue

3. Spending more than what is collected from taxes

4. A government policy for reducing the national debt

The correct answer is: Spending more than what is collected from taxes

Deficit spending refers to a situation where a government spends more money than it collects in revenue, primarily through taxation. This practice often involves borrowing to cover the gap between expenditures and revenues. It can be a strategic choice, allowing a government to invest in development, infrastructure, or social programs even when immediate revenues are insufficient. The other choices describe different fiscal approaches. Maintaining a balanced budget implies that a government’s revenues are equal to its expenditures, contradicting the concept of deficit spending. Spending less than what is collected from taxes indicates a surplus rather than a deficit. Lastly, reducing the national debt involves strategies to lower existing obligations rather than accumulating new debt through additional spending. Thus, the correct characterization of deficit spending is accurately represented by spending more than what is collected from taxes.