PPT: Government Budget and the Economy | Economics Class 12 - Commerce PDF Download

 Page 1


Government 
Budget and the 
Economy
Page 2


Government 
Budget and the 
Economy
Introduction to Mixed Economies
1
Role of Government
In mixed economies, both 
private and public sectors 
drive economic activity. 
Government influences 
the economy through 
various mechanisms, with 
the budget serving as a 
key policy instrument.
2
Budget as Economic 
Tool
Beyond accounting, the 
government budget 
functions as a powerful 
economic management 
tool. It enables addressing 
market failures, 
redistributing wealth, and 
stabilizing economic 
conditions.
3
Fiscal Management
Effective fiscal 
management requires 
understanding budget 
components, deficit types, 
government debt 
implications, and how 
fiscal policy affects 
employment, inflation, 
and growth.
Page 3


Government 
Budget and the 
Economy
Introduction to Mixed Economies
1
Role of Government
In mixed economies, both 
private and public sectors 
drive economic activity. 
Government influences 
the economy through 
various mechanisms, with 
the budget serving as a 
key policy instrument.
2
Budget as Economic 
Tool
Beyond accounting, the 
government budget 
functions as a powerful 
economic management 
tool. It enables addressing 
market failures, 
redistributing wealth, and 
stabilizing economic 
conditions.
3
Fiscal Management
Effective fiscal 
management requires 
understanding budget 
components, deficit types, 
government debt 
implications, and how 
fiscal policy affects 
employment, inflation, 
and growth.
Government Budget: Definition & 
Components
Constitutional 
Requirement
India's constitution (Article 
112) mandates an Annual 
Financial Statement of 
estimated receipts and 
expenditures for each fiscal 
year (April-March).
Two Main Accounts
The budget comprises revenue 
accounts (current transactions) 
and capital accounts (assets 
and liabilities management).
Strategic Function
Beyond accounting, the budget 
serves as a policy statement 
reflecting economic priorities 
and fiscal philosophy.
Page 4


Government 
Budget and the 
Economy
Introduction to Mixed Economies
1
Role of Government
In mixed economies, both 
private and public sectors 
drive economic activity. 
Government influences 
the economy through 
various mechanisms, with 
the budget serving as a 
key policy instrument.
2
Budget as Economic 
Tool
Beyond accounting, the 
government budget 
functions as a powerful 
economic management 
tool. It enables addressing 
market failures, 
redistributing wealth, and 
stabilizing economic 
conditions.
3
Fiscal Management
Effective fiscal 
management requires 
understanding budget 
components, deficit types, 
government debt 
implications, and how 
fiscal policy affects 
employment, inflation, 
and growth.
Government Budget: Definition & 
Components
Constitutional 
Requirement
India's constitution (Article 
112) mandates an Annual 
Financial Statement of 
estimated receipts and 
expenditures for each fiscal 
year (April-March).
Two Main Accounts
The budget comprises revenue 
accounts (current transactions) 
and capital accounts (assets 
and liabilities management).
Strategic Function
Beyond accounting, the budget 
serves as a policy statement 
reflecting economic priorities 
and fiscal philosophy.
Objectives of Government Budget
Economic Welfare
Enhancing citizen wellbeing
Resource Allocation
Providing public goods and services
Income Redistribution
Creating a more equitable society
Economic Stabilization
Countering economic fluctuations
The government operates the budget to achieve multiple economic objectives, each serving to increase 
the welfare of citizens. These objectives represent core economic functions that markets alone cannot 
adequately fulfill, requiring coordinated government intervention through fiscal policy.
Page 5


Government 
Budget and the 
Economy
Introduction to Mixed Economies
1
Role of Government
In mixed economies, both 
private and public sectors 
drive economic activity. 
Government influences 
the economy through 
various mechanisms, with 
the budget serving as a 
key policy instrument.
2
Budget as Economic 
Tool
Beyond accounting, the 
government budget 
functions as a powerful 
economic management 
tool. It enables addressing 
market failures, 
redistributing wealth, and 
stabilizing economic 
conditions.
3
Fiscal Management
Effective fiscal 
management requires 
understanding budget 
components, deficit types, 
government debt 
implications, and how 
fiscal policy affects 
employment, inflation, 
and growth.
Government Budget: Definition & 
Components
Constitutional 
Requirement
India's constitution (Article 
112) mandates an Annual 
Financial Statement of 
estimated receipts and 
expenditures for each fiscal 
year (April-March).
Two Main Accounts
The budget comprises revenue 
accounts (current transactions) 
and capital accounts (assets 
and liabilities management).
Strategic Function
Beyond accounting, the budget 
serves as a policy statement 
reflecting economic priorities 
and fiscal philosophy.
Objectives of Government Budget
Economic Welfare
Enhancing citizen wellbeing
Resource Allocation
Providing public goods and services
Income Redistribution
Creating a more equitable society
Economic Stabilization
Countering economic fluctuations
The government operates the budget to achieve multiple economic objectives, each serving to increase 
the welfare of citizens. These objectives represent core economic functions that markets alone cannot 
adequately fulfill, requiring coordinated government intervention through fiscal policy.
Allocation Function: Providing Public 
Goods
Market Mechanism 
Limitations
Markets cannot efficiently 
provide public goods like 
national defense, 
infrastructure, and 
administration that benefit 
society as a whole.
Non-rivalrous 
Consumption
Public goods don't diminish 
with additional users. One 
person's consumption 
doesn't reduce availability to 
others.
Non-excludability 
Challenge
Difficulty in excluding non-
payers creates "free-rider" 
problems. Without 
government intervention, 
these goods would be 
underprovided despite their 
societal value.