|Posted on April 14, 2014 at 6:20 PM|
A budget deficit occurs when the government spends more than it receives in tax revenue. The government must borrow (issue bonds) to finance its spending. This will often lead to the crowding out effect, a problem associated with expansionary fiscal policies.
A budget surplus occurs when the government receives more money in tax revenue than it spends.
AP Macroeconomics Unit 3 AD/AS & Fiscal Policy