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Capital payments refer to the capital of inflation, there is a tendency for prices
expenditures on various development to rise rapidly. This needs to be checked,
projects, investments by the Government, particularly in the interest of those who
loans given to the state Governments, have more or less a fixed income. The rise in
and Government companies, corporations prices can be checked by lowering the level
and other parties. Besides, it includes of effective demand in the economy. This
expenditure on social and community can be done by increasing taxes which would
development, defence and general services. increase the revenue of the government and
Types of Budget : reduce the purchasing power of the people.
The budgetary provisions of public As a result, the aggregate demand will fall
expenditure and revenue need to be at different leading to downward movement in the price
levels as per the changing needs of the economy. level. Thus, inflationary pressures can be
Accordingly, Government budget is of three controlled.
types : However, a surplus budget should not be
1) Balanced Budget used in the situations other than inflation
as it may lead to unemployment and low
2) Surplus Budget
levels of output in an economy.
3) Deficit Budget
3) Deficit Budget : Government budget
1) Balanced Budget : Government budget is said to be deficit, when anticipated
is said to be balanced, when estimated Government receipts are less than the
revenue and expenditure of the government estimated Government expenditure. That
are equal. That is, Government Receipts = is anticipated Government Receipts <
Government Expenditure. estimated Government expenditure.
The concept of a balanced budget was A deficit budget may prove useful during
advocated by the classical economists like the period of depression. In the period of
Adam Smith. It was considered as neutral depression, all economic activities are at
in its effect on the working of the economy low level which results in unemployment.
and hence, they regarded it as the best. This can be checked by increasing
However, modern economists believe Government expenditure, by borrowing
that the policy of balanced budget may money and through deficit financing. This
not always be suitable for the economy. will increase employment and aggregate
The modern Governments are welfare effective demand for goods and services
entities and hence, they cannot keep their which would encourage further investment.
expenditure at the level of their receipts. In modern times, deficit budget is the most
2) Surplus Budget : Government budget commonly implemented policy of any
is said to be surplus, when estimated Government.
Government receipts are more than the Developing countries like India have
estimated Government expenditure. consistently resorted to deficit budget
i.e. anticipated Government Receipts > technique for economic development.
estimated Government Expenditure. Importance of Budget :
A surplus budget may prove useful Union Budget is important because it
during the period of inflation. In the period affects people and economy in general in a
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