Budget Deficit vs Budget Surplus
Budget Deficit and Budget Surplus are two Fiscal Policy concepts in AP Economics that students often mix up. In short: budget deficit is a budget deficit occurs when government spending exceeds its tax revenue in a given year. Meanwhile, budget surplus is a budget surplus occurs when government tax revenue exceeds its spending in a given year. Here is how they compare side by side.
A budget deficit occurs when government spending exceeds its tax revenue in a given year.
Governments finance deficits by borrowing, which adds to the national debt. Deficits can stimulate a weak economy but may raise interest rates and crowd out private investment. They typically grow during recessions.
A budget surplus occurs when government tax revenue exceeds its spending in a given year.
Surpluses can be used to pay down the national debt and tend to occur during expansions. A surplus is contractionary because it removes spending from the economy. It is the opposite of a budget deficit.