Question

explain the role of government budget in fighting inflationary and deflationary tendencies

Answer 1

govt. plan their budgetry system acording to the economic position. if there is inflation then govt charge more tax on goods, high rate of intrest on loan and in situation of deflation the give subsidies to consumer and also provide loans at low rate of intrest

Answer 2

Role of the government budget in fighting deflationary situations are :-

1. Deficit financing :

The central bank purchases treasury bills for cash, and the government uses the fund to finance the deficit.

2. The tax burden is decreased :

It is decreased to adjust the deficient demand and thereby purchasing power of the people will increase.

3. Increase in public expenditure :

Increase in public expenditure on infrastructural development increases the production efficiency of industries & increase employment opportunities.

During the inflationary situation, the government can take fiscal measures;

1. Increase in taxes :

The government levies new taxes and enhances the rate of prevailing ones.

2. Surplus budget policy:

The government expenditures should be less than its income to control the excess demand.

3. Decrease in public expenditure:

It leads to the fall of aggregate demand. This, in turn, reduces the price level of goods in the market.