What does the Public Sector Borrowing Requirement represent?

• A. The private sector deficit
• B. A government's budget balance surplus
• C. The shortfall between government revenue and expenditure
• D. The balance of trade deficit

Answer: (C)

The idea being tested is what the Public Sector Borrowing Requirement (PSBR) measures. It is the amount the government needs to borrow in a year because its revenue (taxes and other income) is not enough to cover its spending (both current and capital). When expenditures exceed revenue, a deficit arises, and the gap is financed by borrowing from lenders, which is the PSBR. It isn’t a measure of the private sector’s finances, it isn’t the balance of trade, and it isn’t a budget surplus.