Ideally, you want your government to spend only what it collects in revenue (or less), usually from taxes. Money comes in, then it gets spent on the services governments provide. That situation is known as a balanced budget.
However, that doesn't always happen. On the federal level, that (almost) never happens. Instead, money comes in from taxes, then more money gets spent on services, then the government borrows money to pay for the additional spending. That situation is known as a budget deficit.
(Theoretically, the government could also bring in more money than it spends. That circumstance would be known as a budget surplus. But who are we kidding? We might as well start talking about unicorn races or elf picnics.)
The government closes the gap in a budget deficit by selling bonds. For the U.S. government, these bonds are known as Treasuries. It's essentially the same as you borrowing $100 from a friend if you're short on rent for a particular month. Except that in the government's case, we're talking about trillions of dollars to make ends meet.
One key distinction should be made between the government's deficit and its debt. The deficit is the shortfall in a particular budget. So the U.S. government could have a deficit of $780 billion in 2018. The government's debt is the amount it has to borrow to make up for the deficit.
So to pay for the government's deficit of $780 billion, it increased its debt by $780 billion. The debt, unless paid off, keeps getting bigger. It's a running total...up to $22 trillion in the case of the U.S. government as of early 2019.
Related or Semi-related Video
Econ: What is a Budget Constraint?2 Views
And finance Allah shmoop What is budget constraint Oh a
budget is that thing your financial advisor keeps telling you
to make figure out how much you have to spend
and where you want to spend it and that's it
A constraint Is that feeling You get your wasteland after
a trip to the Happy have her bountiful buffet Just
can't eat another bite So put those concept together Budget
constraint on Well that's what this video is about A
budget that gets that feeling around its middle right It
just can't eat another bite Theo It's the last Friday
of the month and well you don't get your next
paycheck until Monday They're seventeen dollars in your bank account
You have thirty three in your pocket and fifty total
to your name But you've got a big date tonight
You can either take your date Teo Aunt May and
three the revenge Or you can probably just squeeze out
dinner for two at the PFC etchings And that is
at least as you only drink water and don't order
APS desserts But you can't go to the movies and
get dinner You have to pick one or the other
the concept of budget constraint attacks your love life Budget
constraints described the purchasing choices people have to make when
they have a limited income in economic circles The budget
constraint problem is usually posed as a choice between two
items This procedure allows economist to do their favorite activity
Make graphs Your brother is coming home after being in
a coma for three years He's not actually out of
the coma but his insurance ran out So you're going
to bring him home and let him keep a coma
in the living room Your family decides to celebrate the
homecoming anyway and they put you in charge of decorating
the house as if he notices you narrow your decoration
choices to two items you think are perfect for this
mccobb situation You can pick from balloons shaped like colostomy
bags and streamers that look like the chords of ivy
machines Well the colostomy balloons cost five dollars each and
the ivy streamers cost fifteen dollars each You have ninety
bucks to spend well There are all sorts of combinations
of purchases you can make You could buy eighteen balloons
and no streamers Are you Goodbye six streamers and no
balloon See they both total ninety bucks Or you could
buy a combo like two of the streamers and twelve
balloons or maybe four streamers and six balloons And this
is presuming you're going to spend all ninety dollars well
graph all the choices and the graph represents your decorating
budget constraint It outlines what's called your opportunity set I
either possible situations that you could choose from Well any
time you buy something when you spend an amount of
money you give up the chance to buy all the
other things you could have bought with that money for
the coma party Well each stream or you buy for
fifteen box means there are three five dollar balloons you
can't buy the opportunity cost for purchasing one decoration is
that you'd necessarily have less dote up Spend on the
other decorations It's the price for dealing with a budget
constraint situation another concept important to a budget constraints situation
Marginal utility Well this idea measures the added value you
get from acquiring one mohr of something like Take the
coma party situation You buy only balloons eighteen balloons and
no streamers What What's the added benefit of that eighteenth
balloon Does it make the party that much more festive
Well but then buying only seventeen balloons Well does Yoon
really no good You still can't afford a fifteen dollars
streamer Buying seventeen balloons instead of eighteen only saves you
five bucks But if you buy fifteen balloons instead of
eighteen well that allows you to purchase a streamer Well
if you want to handle the situation like an economist
you'd graft the total for festive nous of the party
you to sign each decoration a quantitative festive nous kwo
shen or index Are questions better there Yeah Q F
Q work Well you take into account that there's a
diminishing return for conflict with each added balloon Well the
first balloon in a room makes AH room much more
festive Going from zero balloons Toe one balloon takes a
situation from just sitting around with a guy in a
coma to a party However the eighteenth alone in a
room is hardly noticeable The previous seventeen balloons have already
done most of the work of creating that party atmosphere
Rock on baby well graphing the cost of each decoration
and the various festive quotients And economists can figure out
the optimal balloon to streamer ratio maximizing the total party
vibe But Keating within you know your budget constraint Well
by measuring the marginal utility of each item you can
choose among your opportunity set Which combination of balloons and
streamers gets you the most utility That is the combo
that best decorates the house for the money Not that
your brother is going to notice but we're just saying 00:04:26.349 --> [endTime] Hundred and tasty
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