Introduction

Earlier in this book, the government was introduced as standing for 'the state' -- the entity that, alongside the private sector, makes an economy a mixed economy. The government shapes economic life in many ways, but this chapter narrows its focus to just one of its most important tools: the government budget.

The chapter is organised in two parts. It first lays out the components of the government budget -- where the government's revenue comes from and where that revenue is spent (section 5.1). It then turns to the question of whether a budget is balanced, in surplus, or in deficit, explaining the different kinds of budget deficits, what they mean for the economy, and how they can be contained (section 5.2), including a look at fiscal policy and the multiplier. Because persistent deficits accumulate into government debt, the chapter closes by examining what that debt means for the country.