Question

Explain any three objectives of a Government Budget.

Hint:

Think of the budget as the government's main tool to steer the economy. It can encourage or discourage activities (reallocation), help the poor (redistribution), and act like a brake or an accelerator (stabilization).

Answer 1

Step 1: Understanding the Concept:
A government budget is an annual financial statement showing the estimated receipts and expenditures of the government for a fiscal year. It is a key instrument for implementing the government's economic and social policies.

Step 2: Explanation of Three Objectives:
Three major objectives of a government budget are: \begin{enumerate} \item Reallocation of Resources: The government aims to allocate resources in a way that balances the goals of profit maximization (for private sector) and social welfare. It does this through: \begin{itemize} \item Tax Concessions and Subsidies: The government can encourage private investment in desirable areas (e.g., renewable energy) by providing subsidies or tax breaks. Conversely, it can discourage the production of harmful goods (e.g., tobacco, alcohol) by imposing heavy taxes. \item Direct Production: The government can directly produce goods and services (e.g., public goods like national defense, roads, and parks) that the private sector may not find profitable to provide. \end{itemize} \item Reducing Inequalities in Income and Wealth: The government uses the budget to reduce the gap between the rich and the poor. The tools used are: \begin{itemize} \item Taxation: Imposing a progressive income tax system, where the rich are taxed at a higher rate than the poor. \item Public Expenditure: Spending the tax revenue on social welfare schemes, subsidies on essential goods, and public services that benefit the poorer sections of society more. \end{itemize} \item Economic Stability (Controlling Price Fluctuations): The government uses its budget to prevent business fluctuations and maintain price stability. \begin{itemize} \item During Inflation (rising prices): The government can adopt a surplus budget policy. It reduces its own expenditure and increases taxes to curb the aggregate demand in the economy. \item During a Recession/Deflation (falling prices and unemployment): The government can adopt a deficit budget policy. It increases its expenditure (on infrastructure, etc.) and reduces taxes to boost aggregate demand and stimulate economic activity. \end{itemize} \end{enumerate}

Step 3: Final Answer:
Three key objectives of a government budget are the reallocation of resources to meet social priorities, the redistribution of income to reduce inequality, and the maintenance of economic stability by controlling inflation and recession.