Which statement best describes a budget deficit?

• A. Income equals expenses.
• B. Income exceeds expenses.
• C. Expenses exceed income.
• D. Savings exceed expenses.

Answer: (C)

A budget deficit occurs when expenses exceed income. In budgeting, income is the money you receive, while expenses are what you spend. When outflows are larger than inflows, you’re running short, so you’d need to borrow money or use savings to cover the gap. That’s exactly described by the statement that expenses exceed income. If income equals expenses, the budget is balanced; if income exceeds expenses, you’re in a surplus. The idea of savings exceeding expenses isn’t the standard way to describe a deficit, because it would imply you’re saving more than you’re spending, which reflects a positive balance rather than a shortfall.