Explain objective of stability of prices of government budget

Sandeep Garg Macroeconomics Class 12 Solutions Circular flow of Income – Short Questions – Q.2 Explain objective of stability of prices of government budget
“OR”
Explain the economic stability objective of a government budget.

Solution:-

Government through its budget aims to prevent large scale fluctuations in prices. Such a situation, leads to anxiety and fear in minds of consumers and investors. Prices tend to rise when aggregate demand in the economy is higher than aggregate supply. In such a situation, government decreases its expenditures in order to reduce money supply in the economy which in turn reduces aggregate demand. Prices tend to fall when aggregate supply in the economy is more than aggregate demand in the economy. In such a situation, government increases its expenditures in order to increase money supply in the economy which in turn increases aggregate demand.

Short Questions – Sandeep Garg Macroeconomics Class 12 Solutions Government budget and the Economy

• State three objectives of a government budget
• Explain objective of stability of prices of government budget
• How can a government budget help in reducing inequalities reducing inequalities of income? Explain.
• Explain the ‘allocation of resources’ objective of Government budget.
• What is a government budget? Name two sources each of non-tax revenue receipts and capital Receipts.
• What is a government budget? Give the meaning of: (a) Revenue deficit; (b) Fiscal deficit.
• What are the two broad divisions of receipts of the government budget? Name two sources of each kind of receipt.
• Define tax revenue. What are the two kinds of tax revenues? Give two examples of each.
• Distinguish between Direct Tax and Indirect Tax
• Explain with the help of suitable examples the basis of classifying taxes into direct and indirect taxes
• Distinguish between revenue receipts and capital receipts
• Give meanings of Capital receipts and Revenue receipts with an example of each.