1. When revenues exceed expenditures, governments enjoy a budget surplus.
Surpluses & Deficits
When revenues exceed expenditures, governments enjoy a budget surplus.
Surplus = Revenues > Expenditures
If revenues are less than expenditures, governments are faced with a budget deficit.
Deficit = Revenues < Expenditures
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2. Deficits & Debt
When the Government has a Deficit, they then have to borrow money to meet expenditures. This borrowing is called debt.
National Deficit: the amount government spending exceeds revenues in a fiscal year.
National Debt: total amount borrowed from investors to finance the government’s deficit spending for current and previous years.
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3. Impact of the National Debt (cont.)
The national debt, although mostly owed to ourselves, still affects the economy by
Transferring purchasing power from private sector to public sector
Reducing economic incentives
Causing a crowding-out effect
Redistributing income
Two Views of the National Debt
Section 3

4. Concern over deficit spending led to attempts to control it.
Congress mandated a balanced budget.
“Pay-as-you-go” provision
Line-item veto and spending caps
Raising revenues
Reduced spending—difficult because of entitlements
So far nothing has worked at balancing the budget
Section 3