Question

the government deficits means that

Answer 1

Before going to answer the term government deficit one must know the term budget.

Budget

Budget is a statement of government’s regarding income and expenditure.

It shows how a government gets income and how it spends.

The government of every nation needs income to maintain public expenditure. This income is obtained by imposing tax either in the form of direct tax or in the form of indirect tax. Apart from tax the government earns income by running public sector business enterprises.

The income is spending on for the purpose of social welfare of the citizens. In a welfare state the government has to provide certain public utility services where the private sector is not allowed to operate. Example, defense, water supply electricity etc. The government is also to provide social security’s measures such as old age pension, widow pension etc. At the same the nation must grow economically.

For all these the government wants to earn income and this income to be spent wisely.

For the development of every nation the budget to be maintained properly.

The maintenance of a deficit budget, surplus budget or a balance budget depends upon prevailing economic parameters of the economy.

If the economy undergoes a period of recession and unemployment all the economic activities are to be improved. For improving the economic conditions the government wants to implement a deficit budget. Deficit budget is a budget where the expenditure on the government is greater than the revenue.

Under the deficit budget the government spent more than what actually received. The deficit may be covered either by borrowing from banks or financial institution or world institutions like World Bank. During times of deficit budget the national income, gross domestic product and per capita income increase. The increase in all these economic variable leads to the prosperity of the nation.

In times of over employment the government needs to control the economic activity. A surplus budget is preferred in this time. A surplus budget is one where the revenue is greater than expenditure. During time of surplus budget the government increases its revenue by imposing more tax on the economy. As more tax paid by the citizens their purchasing power come down and results in the fall in income, output and employment and price level. Thus an inflationary situation or a situation of over employment can be controlled by a surplus budget.

The budget is an instrument in the hands of government to control business cycle. In time of recovery or boom a surplus budget to be implemented. But during times of recession a deficit budget is to be preferred.

Thus a government should wisely maintain a budget according to the prevailing conditions of the nation.