Calculation:

Budget Deficit/Surplus = Total Revenue - Total Expenditure

Budget Deficit/Surplus = \$500 billion - \$600 billion = -$100 billion

Answer: The country experienced a budget deficit of $100 billion.

Two Potential Consequences of a Budget Deficit:

• Increased National Debt: A budget deficit means the government is borrowing more than it is spending. This leads to an accumulation of national debt, which can become a burden on future generations. Higher levels of debt can also increase interest payments.
• Crowding Out: Government borrowing can increase the demand for loanable funds, driving up interest rates. This can "crowd out" private investment, as businesses find it more expensive to borrow money for expansion and new projects. Reduced private investment can negatively impact economic growth.

Governments allocate funds to defence for several critical reasons:

• National Security: Defence spending is essential for protecting a country's territory, citizens, and economic interests from external threats.
• Maintaining International Stability: Defence capabilities can deter aggression and contribute to maintaining peace and stability in the international arena.
• Economic Benefits: The defence industry can create jobs and stimulate economic growth.
• Technological Advancement: Defence research and development often lead to technological innovations with civilian applications.
• Political Prestige: A strong defence force can enhance a country's international standing and influence.

Potential Advantages of High Defence Expenditure:

• Deters aggression from potential adversaries.
• Provides a sense of security for citizens.
• Supports technological innovation.
• Creates jobs in the defence industry.
• Contributes to international stability.

Potential Disadvantages of High Defence Expenditure:

• Diverts resources from other important areas such as healthcare, education, and infrastructure.
• Can fuel arms races and increase international tensions.
• May lead to unsustainable levels of government debt.
• Can be used to justify military interventions that are not in the country's best interests.

The decision of how much to spend on defence is a complex one, requiring careful consideration of national security threats, economic constraints, and political priorities. A balanced approach is crucial to ensuring both national security and economic well-being.

A government budget deficit is the difference between a government's total expenditure and its total revenue in a given period (usually a financial year). It occurs when the government spends more money than it collects in taxes and other revenues.

Two possible causes of a government budget deficit are:

• Economic Recession: During a recession, tax revenues (particularly income tax and corporation tax) tend to fall as unemployment rises and incomes decline. At the same time, government spending on welfare programs (unemployment benefits, social security) increases. This combination of falling revenue and rising spending leads to a deficit.
• Increased Government Spending: A government may deliberately run a deficit to finance increased spending on public services like healthcare, education, or infrastructure. This can be a response to a perceived need or a policy decision to stimulate the economy. For example, a government might increase spending on infrastructure projects to create jobs and boost economic activity. This is often seen during periods of rapid economic growth or following a major crisis.