Question

describe three types of budget classification and state which is most effective when presenting a budget?

Answer 1

A budget is an annual financial statement which outlines the estimated expenditure and expected receipts or revenues for the forthcoming fiscal year. Depending on the feasibility of these estimates, budgets are of three types -- balanced budget, surplus budget and deficit budget. Mentioned below are brief explanations of these three types of budgets:

BALANCED BUDGET

A budget is said to be a balanced budget if the estimated expenditure is equal to expected receipts in a particular financial year. Advocated by many classical economists, this type of budget is based on the principle of “living within means.” They believed the expenditure should not exceed their revenue.
Though an ideal approach to achieve a balanced economy and maintain fiscal discipline, a balanced budget does not ensure financial stability at times of economic depression or deflation. Theoretically, it’s easy to balance the estimated expenditure and anticipated revenues but when it comes to practical implementation, such balance is hard to achieve.

SURPLUS BUDGET
A budget is said to be a surplus budget if the expected revenues exceed the estimated expenditure in a particular financial year. This means that the earnings from taxes levied are greater than the amount that spends on public welfare. A surplus budget denotes the financial affluence of a country. Such a budget can be implemented at times of inflation to reduce aggregate demand.

DEFICIT BUDGET
A budget is said to be a deficit budget if the estimated expenditure exceeds the expected revenue in a particular financial year. This type of budget is best suited for developing economies Especially helpful at times of recession, a deficit budget helps generate additional demand and boost the rate of economic growth. Here, the government incurs the excessive expenditure to improve the employment rate. This results in an increase in demand for goods and services which helps in reviving the economy. The government covers this amount through public borrowings (by issuing government bonds) or by withdrawing from its accumulated reserve surplus.

Among all the surplus budget is more effective