Question

State with reasons whether you agree or disagree with the following statements.

1. Capital budget consists of revenue receipts and revenue expenditure.
2. When government expenditure is greater than government revenue, it is called Surplus Budget.
3. During the period of inflation, Surplus Budget is advisable.

Answer 1

1. No, the above statement is not correct. A capital budget is mainly concerned with the capital items in the government budget, such as loans, borrowings, land, buildings etc., It consists of capital receipts and capital expenditure. On the other hand, revenue receipts and revenues expenditure form a part of the revenue budget.

2. No, the above statement is not correct. This is because surplus budget refers to the excess of government revenue over the government expenditure. In other words, when government revenue is greater than its expenditure, it is called a surplus budget. On the other hand, when government expenditure is greater than its revenue, it is called a deficit budget.

3. Yes, the above mentioned statement is correct. Inflation refers to the continuous increase in the general price level of the economy. This rise in the price level must be controlled by the government in order to safeguard the interest of the people. This can be done by increasing taxes and lowering the government expenditure, thereby causing a reduction in the effective demand in the country. An increase in taxes and reduction in expenditure of the government will lead to a surplus budget. That is why we say that surplus budget is advisable during the period of inflation.