what type of budget should government prepare at times of-
a) Inflation
b) Deflation
Gazal,
a) Government should prepare surplus budget at times of inflation. Surplus budget is most suitable during severe inflation as it helps in combating the inflation. Since, surplus budget lowers the aggregate demand in an economy by taxing the people and reducing the government expenditure , thus in this manner, it proves to be helpful during severe inflation.
b) Government should prepare deficit budget at times of deflation. Deficit budget is a situation where the government expenditure exceeds its receipts. This kind of budget is preferable at the time of deflation as during deflation, the prices, output and economic activities are low causing unemployment in the country. In order to solve this problem, the government can borrow money (increasing government expenditure) and use it for generating employment opportunities. This will help in increasing demand for goods and services and lowering unemployment.
a) Government should prepare surplus budget at times of inflation. Surplus budget is most suitable during severe inflation as it helps in combating the inflation. Since, surplus budget lowers the aggregate demand in an economy by taxing the people and reducing the government expenditure , thus in this manner, it proves to be helpful during severe inflation.
b) Government should prepare deficit budget at times of deflation. Deficit budget is a situation where the government expenditure exceeds its receipts. This kind of budget is preferable at the time of deflation as during deflation, the prices, output and economic activities are low causing unemployment in the country. In order to solve this problem, the government can borrow money (increasing government expenditure) and use it for generating employment opportunities. This will help in increasing demand for goods and services and lowering unemployment.