Question

Long answer type questions:
Explain the role of government budget in fighting inflationary and deflationary tendencies.

Answer 1

One of the objectives of a government is to maintain economic stability. Economic stability can be achieved by correcting the situations of deficient and excess demand in the economy. Inflationary gap or excess demand is corrected by reducing government expenditure and increasing the tax. Whereas, deflationary gap or deficient gap is corrected by increasing the government expenditure and reducing the tax.