Question

What are ways that can be used by the government to correct inflationary gap using surplus budget?

• A. Reduction in taxes
• B. Increase in tax rates
• C. Reduction in public expenditure
• D. Both B & C

Answer 1

The correct option is D Both B & C

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.