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Government Budget and the economy | Macroeconomics | Class 12 | chapter 10 | Part 1

Government Budget and the Economy

Macroeconomics | Class 12 | Chapter 10 | Part 1

Introduction

  • A government budget is a statement of the estimated receipts and expenditures of the government over a specified period, usually one financial year.

  • It plays a crucial role in an economy as it helps in allocating resources, controlling inflation, managing public debt, and influencing economic growth.

Objectives of Government Budget

  1. Resource Allocation: To determine how resources are allocated among different sectors to meet public demand.

  2. Income Redistribution: To provide a mechanism to reduce income inequalities through taxation and welfare programs.

  3. Economic Stability: To manage the economy's performance by controlling inflation and unemployment.

  4. Economic Growth: To boost overall economic growth by investing in infrastructure and services.

Types of Government Budget

  • Balanced Budget: When total revenues are equal to total expenditures, resulting in no deficit or surplus.

  • Surplus Budget: When total revenues exceed total expenditures, resulting in a surplus.

  • Deficit Budget: When total expenditures exceed total revenues, leading to a budget deficit.

Components of a Government Budget

  1. Receipts:

    • Tax Revenue: Revenues collected from taxes like income tax, GST, etc.

    • Non-Tax Revenue: Revenue collected from other sources like fees, fines, and profits from public enterprises.

  2. Expenditure:

    • Revenue Expenditure: Day-to-day operational expenses of the government (e.g., salaries, pensions).

    • Capital Expenditure: Long-term investments aimed at creating future growth (e.g., infrastructure projects).

Budgetary Process

  • Preparation: The Ministry of Finance prepares the budget based on economic forecasts and government priorities.

  • Presentation: The budget is presented in the Parliament, where it is discussed and debated.

  • Approval: After discussions, the Parliament votes on the budget for approval.

Conclusion

  • The government budget is essential for the economic health of a nation, influencing various macroeconomic factors. A well-planned budget can stimulate economic growth, promote equity, and ensure a fair distribution of resources.