Question

A surplus budget is useful in correcting inflationary gap by lowering the level of _____________.

• A. taxation
• B. effective demand
• C. aggregate supply
• D. income inequality

Answer 1

The correct option is B effective demand

Surplus Budget is the type of budget where the expected government revenue is greater than expected government expenditure due to which there is a surplus in the budget. Surplus budget is regarded as a positive indicator for the economy as it can be used during inflation through increased revenue receipts by increasing taxes or through reduction in revenue expenditure by reducing public expenditure that can soak liquidity from the economy and decrease the purchasing power that results in fall of effective demand in the economy.