If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion, the federal: Choose one:

A. debt increased $1.6 trillion.

B. budget was balanced.

C. debt decreased $1.6 trillion.

D. debt was unaffected in that year.

E. budget surplus was $1.6 trillion.

The correct answer is A) Debt increased by $1.6 trillion

Explanation:

To find whether the government has a surplus or a deficit, we use this simple formula:

Govt surplus/deficit = G-T

where G = government outlays, and T = government revenue or taxes.

If G > T Government has a deficit if G = T Government has a balanced budget if G < T Government has a budget surplus

Now, we simply replace the terms

Govt surplus/deficit = $3.8 billion - $2.2 trillion = $1.6 billion

Because in this equation G > T, the government is in deficit, the deficit equals $1.6 billion, and will have to be financed by issuing debt. Hence, debt will increase by the same amount.