What is a fiscal deficit?

A fiscal deficit occurs when a government’s expenditures surpass its revenues during a specific period, typically a fiscal year. This situation indicates that the government is spending more money than it is bringing in through taxes and other income sources. As a result, the government may need to borrow funds to cover the gap, leading to an increase in national debt. Understanding a fiscal deficit is crucial as it reflects the financial health of a government and has implications for economic policy, public spending, and overall economic stability. In contrast, the other options describe different scenarios: a balance between income and spending denotes a budget balance; an increase in national debt may result from a fiscal deficit but is not synonymous with it; and a situation of economic surplus signifies that revenues exceed expenditures, which is the opposite of a fiscal deficit.