Answer in detail:
1. Explain the concept of Balanced Budget.
Answer:
1. A balanced budget refers to the budget when the total budget expenditure is equal to the total budget receipts.
Balanced budget = Total budget revenue – Total budget expenditure = 0
Adam Smith and other classical economists advocated the concept of a balanced budget. They said that a balanced budget is the best since it has a neutral effect on the economy. However, it was argued by the modern economists that a balanced budget is not always suitable for the economy. For instance, during the depression, the output and economic activities are low, causing unemployment in the country. In order to solve the problem of unemployment, the government must step in. The government can borrow money and use it for generating employment opportunities, thereby increasing demand and lowering unemployment. Thus, during the depression, only a deficit budget is useful, while the balanced budget fails to correct the situation.
