What is the budget deficit?

By Levi Anthony - Posted 4/25/2011

Recently, the U.S. Government averted a shut down. Part of the disagreement between the Democrats and Republicans was over the budget deficit and how much spending should be cut. The federal government is currently running a huge budget deficit. If you spend $1200 a month when your income is $1000, then you are running a monthly deficit of $200. Similarly, when the government spends more than the income it takes in, then it runs a budget deficit. On the other hand, if the government takes in more money than it spends, the difference is called a surplus.

The budget deficit for the current 2011 fiscal year will be around $1.4 trillion. Here is a chart showing the deficit for the years 1970-2010.


As you can see, for most of these years the country has been running substantial deficits. The deficit on this chart is measured as a percentage of GDP. This is a better way of looking at it rather than the raw amounts. GDP means Gross Domestic Product. Economists use this to measure the value of the total goods and services produced by a country in one year. Hence, the deficit for 2010 was about 10% of GDP. 

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