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i) Distinction between a deficit budget and surplus budget
A deficit budget is where the firm’s expenditure exceeds the revenue.
A surplus budget is one where the firm’s expenditure is less than the revenue.
ii) Three advantages and two disadvantages in each case of a deficit budget and a surplus budget.
Advantages
Deficit;
• Enhances creativity and innovation on the part of the government.
• In case of recession the budget deficit is necessary to increase the level of economic activity.
• It can enhance the investment for the future especially if more funds are channeled towards key areas such as health, education, infrastructure etc.
Surplus;
• Increased development activities since there will be enough funds available.
• The government is not constrained to giving a satisfying budget.
• Provides an opportunity to think of investing in the sectors of the economy which
are lagging behind and channeling in more funds in future budgets.
Disadvantages
Deficit;
• Development activities in the country may be slowed down especially if the
government will be unable to finance the deficit.
• A budget deficit will imply that there are lower revenues and increased
government expenditure, this may lead to inflation
• In effort to cover the deficit the government may opt to borrowing which can lead
to a huge or further public deficit.
Surplus
• It can lead to or enhance corruption if monitoring of public funds is not done
appropriately.
• Leads to tying up of funds which could have been invested for future benefits.
Kavungya answered the question on May 6, 2022 at 06:14
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