Deficit definition | Invest | US News
A deficit is a financial imbalance that occurs when debt, expenditure, or liabilities exceed revenue, income, or assets. The term can also refer to a trade imbalance where a country imports more than it exports.
For example, if a company spends $800,000 on operating expenses but only generates $700,000 in revenue, it would have a $100,000 deficit. Or if a country exported $75 billion worth of goods while importing $100 billion worth of goods, it would have a trade deficit between imports and exports of $25 billion.
Calculating a deficit starts with deciding which two economic factors you want to compare. It can be as simple as money going in or going out. You can also use deficits to compare other resources, e.g. B. the number of new hires compared to the number of employees leaving your company. Any time the desirable number is less than the less desirable number, you have a deficit.
There is an almost unlimited number of deficit types since any person or entity can compare a variety of incoming and outgoing assets. However, here are some of the most common types of deficits that you are likely to hear about:
state budget deficit. A government budget deficit occurs when a government has more spending than revenue. For example, imagine a small country with a simple economy. It has nationalized some of its oil, natural gas and agricultural systems. The country brings in money from tax revenues, energy exports, exports of products and interest payments on loans to other countries. It spends money on loan repayments to fund critical infrastructure and a recent war, to maintain a health care system, education and social security.
The country’s total revenue is $800 billion. Its total spending is $950 billion. Hence, it has a national budget deficit of $150 billion.
- revenue deficit. A revenue deficit occurs when an individual or business earns less than expected. For example, if a company expects to make $3 million in a fiscal year but only makes $2.5 million, it would have a $500,000 revenue deficit.
- trade deficit. Trade deficits exist when a country’s exports are less than its imports. For example, in 2019 the US exported fewer goods and services than it imported, resulting in a trade deficit of US$576.9 billion.
You need to know about deficits because it helps in understanding the differences between important economic factors affecting countries and organizations. Deficits can be an important aspect of a company’s financial strategy or an indicator of financial weaknesses that need to be addressed.
frequently asked Questions
A deficit is funded by debt or by borrowing from people, banks, or other entities.
A deficit occurs when a company requires more of a good or service than it can afford. It can also arise when a country consumes more foreign goods than it produces for export, or when a company generates less revenue than planned.
Not always, because deficits may exist for strategic reasons. For example, a trade deficit can make life easier for people who have to pay less for cheap foreign goods like cellphones, computers, and other electronics.