Question

Many communities today are concerned with their local government’s ability to appropriately manage the taxes it collects. If a government spends more money on expenditures than it collects in taxes, it may end up with not enough money, called deficit. Which of the following could result in a county government budget in deficit?
a.
The government raises sales and property taxes without adjusting expenditures.
b.
The county closes a fire station, reducing expenditures, without adjusting taxes.
c.
The county gives all public school teachers a $2,000 raise without adjusting taxes.
d.
The county collects donations to build a fountain in city hall.

Answer 1

Answer: c.

Explanation: A budget deficit occurs when expenditures exceed tax revenue. Giving teachers a $2,000 raise increases government spending without increasing taxes, so it can create a deficit.

a) Raising taxes increases revenue (less likely to cause a deficit).
b) Closing a fire station reduces spending (less likely to cause a deficit).
d) Collecting donations provides extra revenue for the project (does not create a deficit).