Surplus Spending Units

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.