What is a Surplus Spending Unit?

A surplus spending unit is a term used for a unit where the revenue or income is equal to or more than the amount spent on consumption for a period of time. There is always a surplus left after it has covered its basic expenses for sustenance for itself. And the surplus is used to purchase assets or additional goods or lends to the deficit unit. A surplus spending unit can be a whole economy, household or individual. This unit is also referred to as lender. Whereas deficit spending is when the purchase of goods and services is more than its income. The deficit spending unit is known as borrowers in economy. As the unit borrows to cover up its basic necessities. No unit can continually be a deficit or surplus, it can change anytime

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Why is a Surplus Spending Unit Important?

When the Surplus Spending Unit is a country, it can serve as a lender to deficit spending countries. The deficit spending countries who have spent more than their revenues can also lend money from its people by issuing treasury securities Another surplus unit is the household. This is evident in the fact that almost 80% of the Gross Domestic Product of the United States is from consumer/household spending. This household sector earns more than it spends and is thereby able to hold money in banks by saving in the form of retirement.

Related Topic

• Market Economy