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Give Reasons Or Explain the Following Statement: For the Period of Inflation Surplus Budget is Prepared. - Economics

Give reasons or explain the following statement: 

 For the period of inflation surplus budget is prepared. 

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Solution

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 prepared during the period of inflation.

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