Structural and Passive Deficits and Surpluses Deficits and surpluses are a measurement used to identify the financial

health of the economy (Colander, 2010). Essentially these are the ottom line fi!ures that ta"e many financial and accountin! fi!ures and com ine them into one easier to understand num er. #here are oth structural and passive classifications of deficits and surpluses. $ structural deficit is left after removin! cyclical elements (Colander, 2010). Essentially, if the economy is operatin! at its potential level of income the deficit remainin! is the structural deficit. Similarly if the economy is operatin! a ove potential the e%cess ud!et is "no&n as the structural surplus. #o contrast, &hen an economy operates elo& its potential the deficit is "no&n as a passive deficit (Colander, 2010). #he portion of the total ud!et deficit created ecause the economy operates elo& the potential output is "no&n as the passive deficit. 'o&ever, &hen the economy operates a ove potential and creates a surplus this is "no&n as a passive surplus (Colander, 2010). (eynesian Economics and )unctional )inance (eynesian economics is a theory of a!!re!ate demand and ho& it affects economic output and inflation (*linder, 200+). (eynesian economists hold the elief that economic decisions are erratic and monetary and fiscal policies are po&erless in affectin! a!!re!ate demand (*linder, 200+). Chan!es in a!!re!ate demand have little to no effect on prices ut rather affect output and employment. Prices and &a!es respond slo&ly to supply and demand (*linder, 200+). ,ost of these theories are outdated, ho&ever they have paved the &ay for &hat is a more common economic theory. )unctional finance is a theory that indicates the !overnments spendin! and ta%ation decisions are ased on ho& they affect the economy rather than on ud!etary !uidelines (Colander, 2010). #his is the current economic theory most economists su scri e to. )unctional finance dictates that the !overnment shall run a deficit &hen spendin! is too lo& and a surplus &hen spendin! is too hi!h (Colander, 2010). Essentially functional finance is a &ay for the !overnment to !uide the economy in the direction it sees fit for the circumstance. -eferences *linder, $. S. (200+). (eynesian Economics. -etrieved $u!ust 1., 2012 from http/00&&&.econli .or!0li rary0Enc0(eynesianEconomics.html. Colander, D.C. (2010). ,acroeconomics (+th ed.). *oston, ,$/ ,c1ra&2'ill03r&in.