Deficit

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DEFINITION of 'Deficit'

The amount by which expenses exceed income or costs outstrip revenues. Deficit essentially refers to the difference between cash inflows and outflows. It is generally prefixed by another term to refer to a specific situation - trade deficit or budget deficit, for example. Deficit is the opposite of "surplus" and is synonymous with shortfall or loss.

INVESTOPEDIA EXPLAINS 'Deficit'

For example, if a nation has exports of $2 billion and imports of $3 billion in a given year, it would have a trade deficit of $1 billion for that year. Similarly, a government that has revenues of $10 billion and expenditures of $12 billion in a particular year would have a budget deficit of $2 billion in that period.

Large and growing deficits over prolonged periods of time are unsustainable in most cases, irrespective of whether they are incurred by an individual, corporation or government. Huge deficits over a number of years can wipe out equity for an individual or a company's shareholders, eventually leaving bankruptcy as the only option. Although sovereign governments have a much greater capacity to sustain deficits, negative effects in such cases include lower economic growth rates (in case of budget deficits) or a plunge in the value of the domestic currency (in case of trade deficits).

RELATED TERMS
  1. Current Account Deficit

    A measurement of a country’s trade in which the value of goods ...
  2. Budget Deficit

    A status of financial health in which expenditures exceed revenue. ...
  3. Income

    Money that an individual or business receives in exchange for ...
  4. Deficit Hawk

    Slang for someone who wants the government to keep the federal ...
  5. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  6. Fiscal Deficit

    When a government's total expenditures exceed the revenue that ...
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