Copyright © 2011 Pearson Education, Inc. Managing Your Money.

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Copyright © 2011 Pearson Education, Inc. Managing Your Money

Copyright © 2011 Pearson Education, Inc. Slide 4-3 Unit 4F Understanding the Federal Budget

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-4 Federal Budget Basics Receipts, or income, represent money that has been collected. Outlays, or expenses, represent money that has been spent. Net income = receipts – outlays The budget has a surplus if net income is positive. The budget has a deficit if next income is negative.

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-5 Debt vs. Deficit A deficit represents money that is borrowed (or taken from savings) during a single year. The debt is the total amount of money owed to lenders, which may result from accumulating deficits over many years.

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-6 Example: Suppose your gross personal income last year was $45,000. Your expenditures were $20,000 for rent and food; $3000 for interest on your credit cards and student loans; $5000 for car expenses; and $7000 for entertainment and miscellaneous expenses. You also paid $9000 in taxes. Did you have a deficit or a surplus? Solution: Your personal budget had a $1000 surplus. Personal Budget

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-7 Federal Surplus / Deficit and Overall Debt Since 1955

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-8 Federal Budget Summary

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-9 ReceiptsOutlays Federal Government Receipts and Outlays

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-10 Two Kinds of National Debt The publicly held debt (or net debt) represents the money the government must repay to individuals and institutions that bought Treasury issues. The gross debt includes both the publicly held debt and money that the government owes to its own trust funds, such as the Social Security trust fund.

4-F Copyright © 2011 Pearson Education, Inc. Slide 4-11 Off-budget: the portion of the unified budget that is involved in Social Security On-budget: the rest of the unified budget (everything that is not involved in Social Security) The U.S. government’s unified budget represents all federal revenues and spending. The following relationships hold: unified net income = on-budget net income + off-budget net income Or, equivalently, unified net income – on-budget net income = off-budget net income Unified Budget, On Budget, and Off Budget