Surplus Vs National Debt

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In our textbook Principles of Microeconomics, it describes national debt as the sum of all past federal deficits, minus any surpluses. We always hear on the news politicians talk about how our national debt keeps growing in the United States and the government (political party in power) keeps spending, not staying on budget to cut spending or even pass legislation to that end, but just basically passing the burden to the new generations. While in essence that is true, but mainly it just sounds great for politics, I will discuss why our national debt figure (total number amount) is less informative than the national debt as a percentage of GDP about the state of an economy. To understand how we get into debt, we need to understand the role of government and fiscal policy within an economy to maintain economic growth. We have already discussed in previous chapters that the GPD is composed of four elements: consumption, net exports, investments and government spending. Government spending is the main focus of…show more content…
Taxes are another component that affects the total GDP of an economy because they are revenue for government, increasing or decreasing the tax rates can shift aggregate demand curve left or right for consumption, at the same time can put us into a budget deficit, surplus or help us maintain a balance budget. A budget surplus is when government revenues are greater than expenditures. A budget deficit occurs when expenditures exceed revenues. A balance budget is when a budget surplus equal zero. Taxes are present at any level of government, federal, state and local and they reach a broad spectrum like individual, corporate, payroll, sales, property and other types of tax. Taxes are needed to cover all the main three types of government spending mentioned above, government purchases, transfer payments and net
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