Question

Comment on the government’s budget. How did it change after the increase in government purchase?

Answer 1

A budget is a financial plan of the government which serves as a basis for decision making on expenditure and income for a specified period of time normally one year.   It is a statement which reveals how much the government plan to collect from the citizen in the form of tax and how much the government plan to spend. There are two techniques of budgeting. One is balanced budget and other is unbalanced budget. A balanced budget is one where the expenditure of the government is equal to revenue. But in an unbalanced budget the expenditure may be greater than or less than the revenue. When expenditure is greater than revenue the technique of budgeting is known as deficit budgeting. But when the expenditure is less than revenue, it is said that the government is implementing a surplus budget.

If the government increase its expenditure the surplus decrease if the government has surplus in the previous years or the deficit increase if the government has deficit in previous years. The deficit financing increase the public debt. The government usually borrows either from the domestic economy or from the rest of the world to fiancé its deficit. Each addition to the deficit increases the government debt. An increased public spending creates more income to the people and since a deficit today may be offset in tomorrow by increased revenue in the form of tax revenue. Modern governments prefer to budget deficit for the promotion of economic growth. Thus the deficit increases with every increase in public expenditure.