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Types of Budget

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  • Types of Budget
  1. Balanced budget
  2. Surplus budget
  3. Deficit budget

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Types of Budget : 
The budgetary provisions of public expenditure and revenue need to be at different levels as per the changing needs of the economy. Accordingly, Government budget is of three types :
1) Balanced Budget
2) Surplus Budget
3) Deficit Budget

1) Balanced Budget :
Government budget is said to be balanced, when estimated revenue and expenditure of the government are equal. That is, Government Receipts = Government Expenditure.
The concept of a balanced budget was advocated by the classical economists like Adam Smith. It was considered as neutral in its effect on the working of the economy and hence, they regarded it as the best. However, modern economists believe that the policy of balanced budget may not always be suitable for the economy. The modern Governments are welfare entities and hence, they cannot keep their expenditure at the level of their receipts.
2) Surplus Budget :
Government budget is said to be surplus, when estimated Government receipts are more than the estimated Government expenditure. i.e. anticipated Government Receipts >estimated Government Expenditure.  
A surplus budget may prove useful during the period of inflation. In the period of inflation, there is a tendency for prices to rise rapidly. This needs to be checked, particularly in the interest of those who have more or less a fixed income. The rise in 
prices can be checked by lowering the level of effective demand in the economy. This can be done by increasing taxes which would increase the revenue of the government and reduce the purchasing power of the people. As a result, the aggregate demand will fall leading to downward movement in the price level. Thus, inflationary pressures can be controlled. However, a surplus budget should not be used in the situations other than inflation as it may lead to unemployment and low levels of output in an economy.
3) Deficit Budget :
Government budget is said to be deficit, when anticipated Government receipts are less than the estimated Government expenditure. That is anticipated Government Receipts < estimated Government expenditure.
A deficit budget may prove useful during the period of depression. In the period of depression, all economic activities are at low level which results in unemployment. This can be checked by increasing Government expenditure, by borrowing money and through deficit financing. This will increase employment and aggregate effective demand for goods and services which would encourage further investment. In modern times, deficit budget is the most commonly implemented policy of any Government.  Developing countries like India have consistently resorted to deficit budget technique for economic development.

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