Macroeconomics is a vast field of study that deals with the aggregate behavior of the economy. The term, macroeconomics, is a composition of two words: makro, a Greek prefix, meaning large, and economics. Putting it all together, the term is used to refer to a special discipline of economics that architects the art of structure, behavior and decision making of the aggregate economy, rather than studying separate individual units. Here, the question of interest is how can one study the structure, behavior and decision making attitude regarding the completely magnanimous economy, involving many different sectors. However, the answer to this complex question appears to be a simple one. There are different macroeconomic indicators available that help in this decision making; GDP, unemployment rate, inflation, budget deficits and surplus, debt ratios, are a few to name.
For a specified year, all of the government’s spending is known as the national budget of any economy. When studying the aggregate health of any economy, budget deficit and surplus are the two most important indicators. Deficit is a term that is having deficiency, shortfall, shortage, etc, as its synonym. Literally, the term is used to refer the shortfall of money. Hence, the amount by which the expenditure increases the cost is deficit. Summing it up, the difference between cash inflows and cash outflows with a net result ending up with a negative sign is what is meant by deficit. Budget deficit, therefore, simply means an increase in the expenditure of government mounting over the revenues, documenting it in a different way, when government expanses are more than the government revenues. On the other hand, budget surplus in an economy takes place when the reverse holds that is, when the revenues are more than the expanses, a budget surplus is generated. Debt is a term that is closely related to budget surplus and deficit. Literature defines debt as an outstanding amount that is due. In this regard, national debt is the amount that the government of any economy has to pay to the creditors (Colander, 2010).
All of the three terms have a close association with each other in terms of their impact on the aggregate economy. In an attempt to analyze the impact of deficit and surplus on US macro economy, it is an interesting fact to register that the after affects of both the terms are not immediate. US government deficit or surplus will have an impact on the investment activities of the country. If the nation is going through a surplus, more amounts will be available for investment, thus, generating more income, in terms of revenue, for the nation at the end of the cycling period. However, a budget deficit for US government will result in a cut in investment activities. However, here, it is important to understand that this deficit sometimes do not at all affect the investment cycle of United States. United States counterbalance its budget deficit through net imports, supplementing US government with foreign money. Hence, the proceeds can be used to raise investment, which would otherwise be curtailed because of a deficit. It is noteworthy to mention that continuous episodes of budget deficits will result in outstanding amount, which is, better known as national debt for the US economy. The impact of this piling up debt will be dealt with printing of notes, by the US government. However, in an attempt to do so, the consequences will be in the form of the devaluation of money, in terms of other currencies. Ultimately, this deficit and debt cycle will end up with high inflation and high unemployment rate for the US economy (Colander, 2010).
References
Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.
