Budget Surplus

View FREE Lessons!

Definition of a Budget Surplus:

A budget surplus is the amount that an individual’s, company’s, or government’s income exceeds its spending. 

Detailed Explanation:

Governments have a budget surplus when tax revenues exceed government spending. For example, if the government is paid $3.5 trillion in taxes and other revenue and spends $3.0 trillion in the same year, it has a budget surplus of $0.5 trillion. Sometimes a budget surplus is referred to as a “balanced budget” even though the budget is not balanced. Families commonly refer to a budget surplus as “savings”; businesses use the term “net cash flow” rather than a budget surplus. A budget deficit is the opposite of a budget surplus.

Families may spend the money on an item it needs or a luxury. They may also invest the money in a savings account or stocks or buy real estate. Another option is to pay down debt such as a mortgage, car loan, or credit card. Businesses may pay their employees bonuses, shareholders dividends, or invest in an income-generating asset such as new equipment or a factory. 

Governments may spend a surplus on a social program. They also can invest a surplus – perhaps in infrastructure improvements, education, or other areas that further the country’s economic growth. A surplus can also help reduce the national debt. Governments have another option – lowering taxes. Families or businesses, unlike governments, typically do not consider reducing their income when blessed with a surplus (although an individual may consider cutting back on working in favor of leisure). 

Since 1970, the United States has had a budget surplus in only four years, between 1998 and 2001. The graph below clearly illustrates how uncommon a surplus is and the exponential growth in public expenditures and deficits. 

Source: U.S. Government Publishing Office

Dig Deeper With These Free Lessons:

The Federal Budget and Managing The National Debt
Fiscal Policy – Managing an Economy by Taxing and Spending
Monetary Policy – The Power of an Interest Rate
Fractional Reserve Banking and The Creation of Money

Search the Glossary

Investment Calculator:

Market Overview:

Market quotes are powered by TradingView.com

Single Quote:

© Higher Rock Education and Learning, Inc. All rights reserved. No portion of this site may be copied or distributed by any means, including electronic distribution without the express written consent of Higher Rock Education and Learning, Inc.