Question : What is the purpose of a budget deficit?
Option 1: To increase government spending
Option 2: To stimulate economic growth
Option 3: To reduce government debt
Option 4: To provide a surplus for future years
Correct Answer: To stimulate economic growth
Solution : The correct answer is (b) To stimulate economic growth
The purpose of a budget deficit is to stimulate economic growth. A budget deficit occurs when a government's expenditures exceed its revenues or income, resulting in a shortfall that is typically financed through borrowing. While budget deficits are often viewed as negative because they contribute to government debt, they can serve as a deliberate policy tool to stimulate the economy.
During periods of economic downturn or recession, governments may intentionally implement deficit spending to boost aggregate demand and stimulate economic growth. By increasing government spending through the budget deficit, more money is injected into the economy, which can lead to increased consumption, investment, and job creation.
Budget deficits can help address a lack of private sector spending by providing additional funds that circulate in the economy. This increased spending can lead to increased business activity, job creation, and improved consumer confidence, all of which can contribute to economic growth.
