In public finance, what does deficit spending require a government to do when its expenditure is greater than its revenue?

Introduction / Context:
Deficit spending is a common term in economics and public finance. Governments often face a situation where their planned expenditure on development, welfare, defence and administration is higher than the revenue collected through taxes and other sources in a given year. This question asks what deficit spending requires a government to do in order to cover this gap between income and expenditure.

Given Data / Assumptions:
- Deficit spending refers to a situation where government expenditure exceeds government revenue in a financial period.
- The government still wants to maintain or increase its spending for policy reasons, even though revenue is not sufficient.
- The options list various broad actions the government might take when it faces a deficit.

Concept / Approach:
The basic budget identity for a government can be written as: Total Expenditure = Total Revenue + Borrowing. When expenditure is greater than revenue, the gap is called the fiscal deficit. To finance this deficit, the government generally has to borrow money. This borrowing can be from domestic sources such as the public and financial institutions, or from external sources like foreign governments and international organisations. In simple terms, deficit spending requires the government to take on debt.

Step-by-Step Solution:
Step 1: Understand that deficit spending means spending more than the income in a budget period. Step 2: Recognise that to cover this additional expenditure, the government must obtain funds from somewhere beyond current revenue. Step 3: The main way to obtain such extra funds is through borrowing, which directly increases government debt. Step 4: Actions like cutting taxes or hiring more workers do not directly bridge the deficit in the short term. Step 5: Therefore, the correct option is that deficit spending requires the government to take on debt.

Verification / Alternative check:
You can verify this idea by looking at how national budgets are presented. Whenever a finance minister announces a fiscal deficit, there is usually a matching statement on market borrowing, issuance of government bonds, or external borrowing. This shows that deficit spending is matched by borrowing, which becomes part of the public debt.

Why Other Options Are Wrong:
- Cut taxes: Reducing taxes usually reduces revenue further, which can increase the deficit instead of covering it in the short run.
- Hire more workers: Hiring more workers will generally increase expenditure, potentially making the deficit larger.
- Lay off workers: Reducing staff may cut some expenditure, but it is not what the term deficit spending requires; deficit spending itself implies that the government accepts the need to borrow.

Common Pitfalls:
Some learners confuse deficit spending with general economic policy choices, such as cutting taxes to stimulate demand. Another pitfall is thinking that a government simply prints money to cover the gap, ignoring the formal process of borrowing through bonds or loans. While money creation can play a role in some cases, in standard public finance terminology, deficit spending is closely linked to borrowing and an increase in public debt.

Final Answer:
Deficit spending requires a government to take on debt to finance the excess of expenditure over revenue.