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Balanced Budget
A balanced budget simply means having revenue that is at least equal to expenses - so that everything can be paid for without causing a deficit.
This inherently is a good thing, though several factors of how a government operates (such as needing to budget expenses for the upcoming year before it's known how much tax revenue will be received) make a strict balanced budget unfeasible to at least some degree.
In terms of the federal government, there are two issues with the way a balanced budget is discussed...
o There have been proposals for a Constitutional amendment that would require a balanced budget. This would put restrictions on Congress (or even future Congresses) in times when emergency spending could be required. Also, Congress already has the ability to create a budget that would not incur a deficit. An amendment to the Constitution is not required.
A balanced budget Constitutional amendment is the subject of model legislation by the American Legislative Exchange Council (ALEC).
Consumer Price Index (CPI)
A measurement of the cost of living, based on prices of commonly used products such as food, housing, health care, and fuel. It is calculated and published by the Bureau of Labor Statistics.
There actually are several Consumer Price Indexes. Each measures the cost of living for different groups of people.
o CPI-U: This is a measure of how prices affect all urban consumers - about 88 percent of Americans. When you hear the term "inflation" being officially discussed, this index typically is what's being referred to. Adjustments to income tax brackets are based on this index.
o Chained CPI: This measures prices for the same people as CPI-U. The difference is that it assumes consumers can switch to less expensive alternatives. Therefore, its dollar value rises slower - though consumers might not enjoy the same standard of living.
o CPI-E: This shows how the cost of living has changed for people 62 and older.
This chart shows how each of the measurements of the cost of living has changed since 2000...
Cost of Living
A measurement of how much consumers pay for commonly used products such as food, housing, health care, and fuel.
It is measured by the Consumer Price Index (CPI).
Debt (vs Deficit)
Debt is the amount of money owed at a particular point in time. It can be increased by borrowing more or simply by accruing interest on the existing debt. It can be decreased by paying part of it off.
Debt is different from a deficit, which is the how much more money was spent than received over a period of time, such as a year.
By law, the amount of the national debt may not exceed the debt limit.
To view the current amount of U.S. debt, visit www.USDebtClock.org.
Debt Limit (or Debt Ceiling)
The amount of money the U.S. is allowed to borrow in order to pay for its operations.
Practically speaking, however, it has nothing to do with managing the federal budget since spending and revenue are specified by Congress. If Congress allocates more money that exceeds the debt limit, increasing the limit merely allows the government to borrow enough to pay that extra money that was already spent.
Watch this 3-minute video to understand how this really works...
There are two ways Congress can set the debt limit...
o They can set a date, allowing the debt to increase by however much they exceed the previous limit until the specified date.
Deficit (vs Debt)
A deficit occurs when you spend more money than you bring in over some period of time such as a year. (For the opposite situation, see surplus).
This chart shows annual federal deficits since 1977. Years that that chart dips below 0 indicates a surplus. 2020 is a projection by the Congressional Budget Office (CBO).
Click on the chart for the underlying data and key economic events
If the U.S. budget for a fiscal year creates a deficit, the amount of the deficit must be borrowed in order to pay for everything the money was spent on. That amount adds to the national debt.
2020 deficit will exceed $1 trillion (2020-Feb-12)
Fiscal Cliff
(Coming)
Fiscal Year
Organizations maintain their finances year to year, but those years can begin whatever month the organization chooses. It is not always January like the calendar year. The one-year period, starting with whatever month the organization has chosen, is known as its fiscal year. Once set, it is permanent for the most part.
The United States' fiscal year starts in October (of the previous year). So the 2017 fiscal year runs from October 1, 2016 through September 30, 2017.
Gross Domestic Product (GDP)
The Gross Domestic Product (GDP) is a measure of a country's overall economy. It is the total value of goods and services produced in the country over some time period (ex. in a year).
Two ways economists calculate GDP are...
o Expenditure Approach: Calculated by adding up total consumption, investment, government spending, and net exports (exports - imports)
The actual dollar amount isn't as important as the comparisons that can be made using GDP to help explain issues affecting the economy. For example...
o Because countries come in all sizes, a comparison often is made by dividing a country's GDP by its population. This is referred to as per-capita GDP
o Expenses (for things such as health care or defense) often are measured as a percentage of the GDP - in order to be compared with the amount other countries spend as a percentage of their GDP.
Labor Force
The Labor Force is is made up of all people age 16 and over who are employed or unemployed.
Poverty Level
The federal poverty level is an estimation of what it would cost in a year to meet basic needs such as food and housing.
It is used to determine eligibility for programs such as the Supplemental Nutrition Assistance Program (SNAP), Head Start, the National School Lunch Program, the Low-Income Home Energy Assistance Program, and the Children's Health Insurance Program (CHIP).
An individual or family is considered to be living below the poverty level if their income is less than the level specified for the size of their family. It is updated each year by an amount based on the Consumer Price Index (CPI).
The government actually maintains two separate poverty levels...
o Poverty Threshold: Set by the U.S. Census Bureau. It is used mostly to calculate statistics.
Click here to see the poverty guidelines for 2016.
Recession
A significant slowdown of economic activity.
A recession generally is recognized as a six-month period in which the Gross Domestic Product (GDP) goes down.
For more, read the Investopedia description.
Sequester
A set of across-the-board budget cuts implemented in March 2013 as the culmination of a series of congressional actions and inactions.
For more, read our discussion of this issue.
Surplus
A surplus occurs when you bring in more money than you spend over some period of time such as a year. (For the opposite situation, see deficit).
If the U.S. budget for a fiscal year creates a surplus, the amount of the surplus may be used pay off (i.e. reduce) some the national debt. Alternatively, it can be used for whatever Congress and the President agree to, such as rebating the money to taxpayers or paying for additional programs.
Troubled Asset Relief Program (TARP)
(Coming)
Unemployed
The Bureau of Labor Statistics classifies someone as unemployed if they do not have a job, but have been actively searching for one in past 4 weeks.
After 27 weeks, if they still have not found a job they are considered long-term unemployed.