Terms and Concepts
In this section, we define and explain some key terms and concepts: deficit, national debt, national interest and debt ceiling. Please see our companion fact sheet on the Balanced Budget argument/amendment.
Deficit
- Deficit in any given year is the amount of money the federal government spends minus the amount of money it takes in
- The federal government has to borrow the amount of the deficit to pay its bills
- There are two types of deficits: cyclical and structural
- Cyclical: When the economy is weak, incomes decline so the federal government takes in less tax revenues and spends more for safety net programs; economists believe that increases in the deficit resulting from an economic downturn perform a beneficial stabilizing role by cushioning the decline in overall demand
- Structural: A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors; Deficits resulting from structural deficits are likely to have harmful effects on private credit markets and hurt economic growth over the long term