Question

When governments run budget surpluses, what is done with the extra funds?

Short answer

Surpluses are largely used by the government to lower the federal debt.

Step-by-step solution

Step 1. Define budget surplus.

A budget surplus is formed when income exceeds expenses. Individuals have "savings" rather than a "budget surplus," hence the term is usually used to describe the state of a government's finances. A budget surplus means the government's finances are in good shape.

Step 2. What is done with the extra funds?

A surplus occurs when the government collects more money than it spends. The government mostly uses surpluses to reduce the federal debt. The money might be used to pay down the national debt or given back to taxpayers.