Q.Examine the correctness of the following statement and correct it if incorrect, without changing the underlined portion : Surplus budget is more effective to control inflation.

The statement is correct — a surplus budget helps curb inflation by reducing aggregate demand.

A surplus budget is one in which the government's revenue (mainly taxes) exceeds its expenditure. Inflation is a situation of excess aggregate demand — too much money chasing too few goods, pushing the general price level up.

To control inflation the government needs to reduce aggregate demand/purchasing power in the hands of the public. A surplus budget does exactly this: by collecting more in taxes than it spends, the government mops up surplus purchasing power from households and firms and injects less back through spending. The net withdrawal of demand pulls down the upward pressure on prices. (The opposite, …

The statement is incorrect; in a balanced budget receipts equal expenditure. Correct statement: 'In a balanced budget, government receipts are equal to government expenditure.'

A government budget is classified by the relationship between its receipts and its expenditure:

• Balanced budget — government receipts = government expenditure. Income and spending exactly match.
• Surplus budget — government receipts > expenditure (useful to curb inflation).
• Deficit budget — government expenditure > receipts (useful to fight depression/unemployment). …

The statement is incorrect; a surplus budget is useful during inflation, not deflation.

This is a correct-the-statement item in CHSE Odisha +2 Business Economics, keeping the underlined part — 'Surplus budget is useful during' — unchanged.

• A surplus budget (revenue exceeds expenditure) withdraws purchasing power from the economy. This is the right tool during inflation, when aggregate demand is excessive and must be curbed. …

The statement is incorrect; in public finance income is adjusted to expenditure, not the other way round.

This is a correct-the-statement item in CHSE Odisha +2 Business Economics, keeping the underlined part — 'In public finance normally ... adjusted to ...' — unchanged.

A classic distinction between private and public finance:

• In private finance, an individual first knows his income and then plans his expenditure within it — expenditure is adjusted to income. …