Question

examples for the effect of budget on public finance

Answer 1

A public budget surplus means that the government of the economy has extra money to finance government spending. An increase in government spending (expansionary fiscal policy) would lead to an increase in output (through the multiplier effect) however it would also increase interest rates as because incomes have increased so consumers demand more money. In order to combat this, the government could undertake an expansionary monetary policy where the monetary authority of the economy (usually the Central Bank) purchases bonds in order to pump in money into the economy to increase the money supply. This would drop interest rates and increase output.

Now the aggregate demand has increased. Firms are faced with higher demand. Workers are now in a better position to bargain for higher wages. These higher wages would translate to higher costs for the firms and thus it would increase prices. Moreover Public have more finance to live their lives .

For example as I live in India , recently due to unprecended pandemic of Covid 19 , when country is facing a plunging and dwelling economy , when the running wheel of the country had been stopped , when there is a stigma of famines and starvation , when the GDP is country significantly falls , when there is a unemployment all around the country , when the country's demeanor seems to be derelict , our impeccable finance minister came out with a long missive and announced a package of 20 lakh crore which include expansionary monetary policy abreast with expansionary fiscal policy which push out the running wheel for the economy and will optimistically help in the public finance and put out the money in hand of  the citizens just like a unilateral transfer to sour up there survival in this pandemic .