Economy Essay

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Federal Budget Deficits and Debt - The Growing Financial Crisis of the US Government 1: Explain the concept of a balanced budget. The idea of a balanced budget is that there is more revenue coming in at a given time than expenses that are going out. In essence, as long as there is more money coming in than money that is going out then a balanced budget has occurred. 2: What is a budget deficit? A budget deficit is virtually the opposite of a balanced budget; it is when the government is spending more money than what it receives for revenue. This debt is owed to those who lent the money to the government. For example; the deficit that is projected for the FY2011 is $1.26 trillion. In 2011, the government is projected to receive $2.57 trillion in revenue but pay out $3.83 trillion in expenditures. 3: What is a budget surplus? A budget surplus is when the government’s revenue exceeds its spending in a given period of time. Although it is not imperative that the government sustain a budget surplus, it has to be cautious about the budget deficit because financing the deficit itself can create a burden on taxpayers from the interest rates alone. Instead of revenue being used in more productive manners, it can end up being used to simply finance the debt; interest rates need to be in proportion to the amount of income that is coming in. 4: How does the government cover its deficits in any one year? The way the government covers its deficits in any given year is to borrow money from the Federal Reserve. The U.S Treasury achieves this through numerous avenues such as securities or IOU’s like savings bonds or treasury bills, notes, and bonds. Lenders are willing to lend based on the incentive of the interest it will receive in return; the government pays the borrowed money back by taxing the American people. It’s interesting to note that since 1969, Congress has spent

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