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The terms deficit

The terms deficit and surplus are defined as the shortfall and excess of “revenues under payments,” respectively (last name of author, year, p. 727). The two terms are considered as “flow concepts” (last name of author, year, p. 727). In the long-term perspective, a deficit is viewed as something negative because they reduce three things, which are “saving, growth, and income” (last name of author, year, p. 726). Surpluses, on the other hand, are regarded with positive terms because this gives the economy the additional opportunity for savings.

However, it is different for the short-term framework where it depends on the situation provided on whether the surplus and the deficit will be regarded as good or bad. When encountering a deficit, the US government may pay for the said deficit by selling bonds or to take a loan from their central bank. There may be different ways of looking at a deficit and a surplus and with the way of defining it. This will depend on the way funds are accounted for.

If the economy is at its “potential level of income,” the part of the budget deficit or surplus which remains at that level would be called the structural deficit or structural surplus (last name of author, year, p. 729). On the other hand, the passive deficit or passive surplus is considered as that part of the budget deficit or surplus that is left because the economy is “below or above its potential level of output” (last name of author, year, p. 729). The same may also be called the cyclical deficit. Likewise, distinction can be made between nominal and real deficits and surpluses.

The nominal deficit is defined is “determined by looking at the difference between the expenditures and [the] receipts” (last name of author, year, p. 730). On the other hand, the real deficit is said to be the nominal deficit that has been adjusted for the inflation rate. Moving on to debts and assets, debts is said to be the difference between the accumulated deficits and the accumulated surpluses and it is differentiated from the deficit by being mainly a “stock concept” (last name of author, year, p.731).

On the other hand, the asset is computed by subtracting the accumulated deficits from the accumulated surpluses. Debt management may be carried out by taking into account the need to view the debts incurred by the country vis-a-vis the assets it has. The way debts and assets are seen also play a crucial role to such. The three main points by which individual debt is different from that of a government debt is with regard to their life span, the ability to print money, and to whom the debt is owed.

Looking at the historical record of the US, it can be said that most of the decrease in the ratio of debt-to-GDP may be accounted by the increase in GDP which may be brought about by real growth and a rise in the nominal GDP. Comparing the debt burden of the country to other countries, it can be said that the debt problem of US is not so heavy as compared to the others. Some of the surpluses that the government has incurred are due to the Social Security system provided.

On the other hand, the deficits that came about since the World War II may be said to have risen from the government’s adoption of the Keynesian policy. There are three policies that are mentioned to achieve a match between the real expenditures and the real production which are a) increase in the taxes of the workers with the aim of reducing their consumption, b) reduction in the payments to the Social Security to reduce the retiree’s consumption, and c) raising the retirement age to 72 years old.

References

Last name of author, First name initial. (Year). Title of book. Place of publication: Publisher.

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