Budget Surpluses (Revenues Exceed Expenses)

KEY TAKEAWAYS

• The U.S. government uses two types of policies – monetary policy and fiscal policy – to influence economic performance. Both have the same purpose: to help the economy achieve growth, full employment, and price stability.
• Monetary policy is used to control the money supply and interest rates.
• It's exercised through an independent government agency called the Federal Reserve System ("the Fed"), which has the power to control the money supply and interest rates.
• When the Fed believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates. To counter a recession, it will use expansionary policy to increase the money supply and reduce interest rates.
• Fiscal policy uses the government's power to spend and tax.
• When the country is in a recession, the government will increase spending, reduce taxes, or do both to expand the economy.
• When we're experiencing inflation, the government will decrease spending or increase taxes, or both.
• When the government takes in more money in a given year (through taxes) than it spends, the result is a surplus.
• When the opposite happens – government spends more money than it takes in – we have a deficit.
• The cumulative sum of deficits is the national debt – the total amount of money owed by the federal government.