When a government spends more than it collects in revenues over a period, this is called?

• A. Deficit spending
• B. Monetary policy
• C. Fiscal policy
• D. Multiplier effect

Answer: (A)

Deficit spending is when the government spends more than it collects in revenues over a period. When expenditures exceed receipts, borrowing is used to cover the gap, which increases the national debt. This situation is a direct example of fiscal policy in action—the government's use of spending and taxes to influence the economy. Monetary policy, by contrast, deals with the money supply and interest rates set by the central bank, not the budget balance. The multiplier effect describes how initial changes in spending can ripple through and amplify in the economy, rather than describing how a budget balance is achieved. So the term that best describes the described situation is deficit spending.