Question

An entity is a surplus spending unit (SSU) if

a) Spending exceeds income
b) Income exceeds spending
c) Spending equals income
d) Cannot be determined

Answer 1

An entity is a surplus spending unit (SSU) if income exceeds spending, making option b) the correct answer. An SSU is one that can save or invest its excess funds, in contrast to a deficit spending unit (DSU) which must borrow to cover its spending over income.

Step-by-step explanation:

An entity is a surplus spending unit (SSU) if income exceeds spending. This is because a surplus implies that there is excess income after all spending has been accounted for. By definition, an SSU is an economic term referring to an individual, business, or government that earns more than it spends and hence has excess funds. These funds can then be used for saving or investing. On the other hand, when an entity spends more than its income, it runs a deficit and is known as a deficit spending unit (DSU).

For example, if a government runs a budget surplus where taxes exceed spending, like the U.S. government did from 1998 to 2001, it would be contributing to the supply of financial capital and would be considered an SSU. Conversely, when the U.S. government experienced a significant budget deficit in 2009, spending $1.4 trillion more than it collected in taxes, it was a DSU as it required borrowing funds.