Surplus Spending Units
A surplus spending unit is an economic unit with income that is greater than or equal to expenditures on consumption throughout a period. The opposite of a surplus spending unit is a deficit spending unit, which spends more than it makes and has to borrow from surplus units to sustain itself. A deficit spending unit can become a surplus spending unit if it begins to generate additional income, covers its basic expenses, and pays off all of its own deficits from an earlier period. When a surplus spending unit is an entire country, it can benefit the global economy by investing in and lending to deficit spending countries. A surplus spending unit earns more than it spends on its basic needs and therefore has money left over to invest into the economy through the form of purchasing goods, investing, or lending.
What Is a Surplus Spending Unit?
A surplus spending unit is an economic unit with income that is greater than or equal to expenditures on consumption throughout a period. A surplus spending unit earns more than it spends on its basic needs and therefore has money left over to invest into the economy through the form of purchasing goods, investing, or lending. A surplus spending unit can be a household, business, or any other entity that makes more than it spends for the purpose of sustaining itself.
The opposite of a surplus spending unit is a deficit spending unit, which spends more than it makes and has to borrow from surplus units to sustain itself. Once an entity is a surplus or deficit spending unit, it does not have to maintain that status forever. A deficit spending unit can become a surplus spending unit if it begins to generate additional income, covers its basic expenses, and pays off all of its own deficits from an earlier period.
Understanding Surplus Spending Units
A surplus spending unit earns more than it spends. Surplus spenders can be individuals, sectors, countries, or even a whole economy. When a surplus spending unit is an entire country, it can benefit the global economy by investing in and lending to deficit spending countries.
In the U.S., households usually represent a surplus spending unit, as many households earn large portions of disposable income. Most households earn more income than necessary to purchase food, shelter, and other basic necessities. As a result, they can purchase additional consumer products, hold money in banks, or invest in the stock market. These purchases of consumer goods by households constitute a large portion of the U.S. economy, as approximately 70% of the U.S. Gross Domestic Product (GDP), every year is powered by consumer spending. Money that is held in banks by households forms the basis for loans that can be made to other households that look to borrow money.
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
Consumer Discretionary
Consumer discretionary is an economic sector comprising non-essential products that individuals may only purchase when they have excess cash. read more
Consumer Spending
Consumer spending is the amount of money spent on consumption goods in an economy. read more
Deficit Spending Unit
A deficit spending unit describes how an economy or economic unit within an economy has spent more than it has earned over a given measurement period. read more
Disposable Income
Disposable income is the amount of money that a person or household has to spend or save after income taxes are deducted. read more
Gross Domestic Income (GDI)
Gross domestic income (GDI) is a measure of economic activity based on all the income earned while engaged in said economic activity. read more
Gross Domestic Product (GDP)
Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. read more
Stimulus Package
A stimulus package is a package of economic measures put together by a government to stimulate a struggling economy. read more