| Question | 8. Explain the objectives of resource allocation and income distribution in a government budget |
| Class | Class 12 |
| Chapter | Government Budget and the Economy |
| Subject | Economics (Macroeconomics) |
| Category | Sandeep garg Macroeconomics Class 12 Solutions |
Sandeep Garg Macroeconomics Class 12 Solutions Circular flow of Income – Long Questions – Q.8 Explain the objectives of resource allocation and income distribution in a government budget.
Solution:
- Reducing Inequalities in Income: – Government through its budget seeks to reduce the divide between the rich and the poor. This is done by increasing taxes on the rich and increasing government’s expenditure on the welfare schemes for the poor. Such a policy, reduces disposable income of the rich and results in increased quality of life of the poor, thereby reducing the effects of income divide.
- Reallocation of Resources: – Government through its budgetary policy relocates resources to maintain the balance between its objectives of profit maximization and social welfare. To achieve profit maximization and encourage investment, government invites private players by providing tax holidays, subsidies etc. but sometime private players hesitate to take up projects requiring heavy investment and having long gestation periods such as sanitation, building of roads etc. In such a situation government takes up these projects for social welfare.