You want to take a Caribbean vacation. It costs $3,000. However, you only have $200 in the bank, your credit cards are already maxed out, and all of your friends refuse to loan you any money. Guess you'll be taking your vacation at the local Motel Sleazo. Hope you enjoy vibrating beds.
That's budget constraint. You reach the end of your financial resources and can't buy what you want.
Just like you, governments can reach the end of their budget possibilities. Governments have more cash flow than you do, plus they can usually borrow more (U.S. federal government debt: $22 trillion...now, that would pay for a heck of a vacation).
Governments can also raise taxes to bring in more money. The ability to borrow and the ability to raise taxes means that government's don't run into the same hard constraints as you do. They rarely have their credit cards embarrassingly denied trying to buy a $0.79 donut.
But a government reaching its constraints can have wider impacts. When you run out of money, it just means you have to economize on your vacation. When a government does...it can impact entire economies.
Raising taxes too much cuts into economic activity. Meanwhile, excess debt used to fund government spending (especially on the federal level) can impact inflation.
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Finance: What is a Budget?43 Views
Finance a la shmoop what is a budget? that's that thing you throw right out [Woman throws budget out the window]
the window just before you start doing all your Christmas shopping
right but generally it's a plan that lets you see where your money will be
spent if you have a personal budget well you'll be able to decide ahead of time [Personal budget example]
how much money you'll spend on clothes, food, megaphones to annoy and anger your
neighbors and you know whatever floats your boat if you own a company well
you'll probably have much more complicated budget for things like
advertising and lawyer fees either way the plan helps you make sure that you
have enough moolah for everything you need and maybe some leftover for stuff
you want.....Joan wants to control her money so she decides to set up a budget for [Joan setting up a budget on a laptop]
next month she makes a thousand bucks from her summer job and well here's what
her budget looks like.....
Now Joan knows exactly where every penny is gonna go she's not [Joan driving a car]
gonna be caught off guard by any surprise expenses she's not gonna spend
$200 on safecracking equipment and then realize she doesn't have enough left [Joan stood beside a vault of gold bars]
to pay her phone bill although if she does get hit with some unexpected
expenses well hopefully yeah she can just pawn some of those exotic vases she
took from the Peterson place [Joan holding a vase]
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