Question : In case of inflationary situation in the economy government prepares?
Option 1: Deficit Budget
Option 2: Surplus Budget
Option 3: Both (a) and (b)
Option 4: None
Correct Answer: Surplus Budget
Solution : The correct answer is (b) Surplus Budget.
During inflation, the general price level in the economy rises, and there is an excess of aggregate demand over aggregate supply. To control inflation and stabilize the economy, the government adopts contractionary fiscal policies, which may include implementing a surplus budget.
A surplus budget implies that the government's total revenues exceed its total expenditures. By reducing government spending or increasing taxes, the government aims to reduce the aggregate demand and control inflationary pressures in the economy.
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