The Budget Balance: Deficit vs. Surplus

• Budget Balance =

• • Income – Outflow
  • Taxes minus GovtSpending minus Transfers
  • T – G – Tr

• If Balance is:

• • positive  surplus
  • negative  deficit

• The terms deficit and surplus:

• • Refer to flow variables
  • Summarize the budget balance each fiscal year.

• Deficits are paid by new borrowing