The
amount by which a
government's, company's, or
individual's income exceeds its spending over a particular
period of time. Generally, a
government does not
need to maintain a
budget surplus. However, a government has to be careful about running a
budget deficit to make sure that the
means of
financing the
deficit do not cause too much of an
interest burden. In general,
economists become worried when government
debt, the most common way of financing a government deficit, rises sharply as a proportion of
Gross Domestic Product. This is because interest
payments might also rise as a proportion of
Gross Domestic Product unless the government manages to sufficiently reduce the
average interest rate paid on the debt. An increasing interest burden means that government
revenues will be diverted to
pay for financing
costs, as opposed to being used for more
productive purposes. As in the case of the government, individuals and
corporations do not have to
ensure that their
budgets are in surplus or balanced, but they have to be mindful of
interest costs as a proportion of their income. Some economists believe that
manipulation of the government budget surplus is an effective way of stimulating or slowing
economic growth. However, other economists say that manipulating the budget deficit will only result in a change in the
price level in the
economy, since actual
production change in an economy is only decided by changes in the
labor force, the state of technology, and
productivity of the
workforce.
