CBSE 2025, Compartment, Set 1

Question

"The government through its budgetary policy may intervene to expand or reduce demand in an economy."
In the light of the given statement, discuss briefly the budgetary objectives the government is trying to achieve.

Edvaya · Accepted Answer

The correct answer is Subjective. The budgetary objective highlighted in the statement is **Economic Stability**. The government uses its budgetary (fiscal) policy to control severe economic fluctuations like inflation and deflation to maintain economic stability: 1. **During Inflation (Excess Demand):** The government aims to reduce Aggregate Demand by increasing taxes (which reduces disposable income) and heavily decreasing its own public expenditure. 2. **During Deflation (Deficient Demand):** The government aims to expand Aggregate Demand by lowering taxes to boost consumer spending and stepping up public expenditure (e.g., on infrastructure) to inject money into the economy.

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Economics > Introductory Macroeconomics > Government Budget

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