NCERT Solutions for Class 12 Economics Chapter 5 The Government: Budget And The Economy

The budget of a government shows its comprehensive exercise on taxation and subsidies. A government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy. A government budget is an annual financial statement depicting item wise approximates of expected revenue and foreseen expenditure during a fiscal year. The government can bring in economic stability, i.e. control fluctuation in general cost price degree, via taxes, subsidies and expenditure. When there is inflation, the government can reduce its expenditure. When there is deflation, a government can reduce taxes and give subsidies to encourage spending by the people.