Headlines about the government’s budget tend to focus on just one point: whether the government is running a surplus or a deficit and, in either case, how big. People usually think of surpluses as good: when the federal government ran a record surplus in 2000, many people regarded it as a cause for celebration.

Conversely, people usually think of deficits as bad: when the U.S. federal government ran record deficits in 2009 and 2010, many people regarded it as a cause for concern.

How do surpluses and deficits fit into the analysis of fiscal policy? Are deficits ever a good thing and surpluses a bad thing? To answer those questions, let’s look at the causes and consequences of surpluses and deficits.