Surpluses, Deficits, and Debts A government budget surplus occurs when the government collects more in taxes than it spends; a government budget deficit occurs when the government spends more than it collects in taxes. The U.S. federal government had a surplus between 1998 to 2000 and a deficit after 2001. The current account balance equals exports minus imports plus interest income received from the rest of the world minus interest expense paid to the rest of the world. Payments (for, say, imports) greater than receipts (from, say, exports) create a current account deficit. The United States has had a current account deficit since 1980. The government debt is the national debt. The national debt is the total amount the government owes. A government budget deficit increases the national debt. The U.S. international debt is the amount U.S. residents owe to foreigners. Current account deficits increase the U.S. international debt. Macroeconomic Policy Challenges and Tools Five widely agreed upon challenges for macroeconomic policy are: Boost economic growth Keep inflation low Stabilize the business cycle Reduce unemployment Reduce the government and international deficits Achieving these challenges will help the economy. The two general macroeconomic policy tools the government has at hand to help attain the policy goals are: Fiscal policy setting and changing tax rates and the amount of government spending. The federal government can use fiscal policy in efforts to accomplish some of the policy challenges. Monetary policy changes in the interest rate and the amount of money in the economy. Monetary policy is under the control of the Federal Reserve, or Fed. The Federal Reserve can use monetary policy to try to meet some of the
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