An important difference between the federal government’s budget and a personal budget is that only the government’s budget involves __________.
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Answer:
government budget is an annual financial statement which outlines the estimated government expenditure and expected government 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 government budget is said to be a balanced budget if the estimated government expenditure is equal to expected government 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 government’s 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.
Ensures economic stability, if implemented successfully.
Ensures that the government refrains from imprudent expenditures.
DEMERITS OF A BALANCED BUDGET
Unviable at times of recession and does not offer any solution to problems such as unemployment.
Inapplicable in less developed countries as it limits the scope of economic growth.
Restricts the government from spending on public welfare.
SURPLUS BUDGET
A government budget is said to be a surplus budget if the expected government revenues exceed the estimated government expenditure in a particular financial year. This means that the government’s earnings from taxes levied are greater than the amount the government 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 government budget is said to be a deficit budget if the estimated government expenditure exceeds the expected government revenue in a particular financial year. This type of budget is best suited for developing economies, such as India. 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.
MERITS OF A DEFICIT BUDGET
Helps in addressing public concerns such as unemployment at times of economic recession.
Enables the government to spend on public welfare.
DEMERITS OF A DEFICIT BUDGET
Can encourage imprudent expenditures by the government.
Increases burden on the government by accumulating debts.
hoping it helps
Depending on the feasibility of these estimates, Budgets are of three types -- balanced budget, surplus and deficit budget.