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Question
In order to tackle the problem of rising general price in an economy, government may come up with a surplus budget to achieve the budget objective of ______.
- reallocation of resources
- price stability
- redistribution of income
Options
(i) only
(ii) only
(iii) only
(i) and (iii)
Solution
(ii) only
Explanation:
Surplus budget (Government Receipts > Government Expenditure) is used to limit the economy's growing prices. It will help to sponge up the economy's liquidity or money supply. It will cause a drop in aggregate demand and the price level. It has nothing to do with resource reallocation or revenue redistribution.
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