Which of the following statements explain the objectives (functions) of government budget?
A. Provide goods which are non-rivalrous in nature
B. Intervenes to stabilise the aggregate demand
C. Can stabilise economy through change in bank rate
D. Can change distribution of income and bring distribution which is fair by society
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A, B and D only
Every year the government places before Parliament a statement of its estimated receipts and expenditure for the financial year: the government budget. Through it the government does three jobs the market cannot do well on its own: it provides public goods (allocation), makes the distribution of income fairer (redistribution) and steadies aggregate demand (stabilisation). Statements A, B and D describe these three; C describes a tool of the central bank.
A. Provide goods which are non-rivalrous in nature True. This is the allocation function. Public goods such as national defence, roads and a public park cannot be provided by the market, because one person’s use of them does not reduce what is available to others (they are non-rivalrous) and no one can be kept from using them. So the government provides them through the budget.
B. Intervenes to stabilise the aggregate demand True. This is the stabilisation function. When demand is too low to keep people employed, the government raises it; when demand runs ahead of output and causes inflation, the government reduces it.
C. Can stabilise economy through change in bank rate False. The bank rate is the rate at which the central bank lends to commercial banks. Changing it is an instrument of monetary policy, used by the RBI, and not a function of the government budget.
D. Can change distribution of income and bring distribution which is fair by society True. This is the redistribution function. Through taxes and transfer payments the government changes the disposable incomes of households and brings about a distribution of income that society considers fair.
NCERT (2025-26): “Redistribution Function of Government Budget … The government sector affects the personal disposable income of households by making transfers and collecting taxes. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by society. This is the redistribution function.… Allocation Function of Government Budget Government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumers and producers. Examples of such goods are national defence, roads, government administration etc. which are referred to as public goods.… …However, if we consider a public park or measures to reduce air pollution, the benefits will be available to all. One person’s consumption of a good does not reduce the amount available for consumption for others and so several people can enjoy the benefits, that is, the consumption of many people is not ‘rivalrous’.… Stabilisation Function of Government Budget … The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function.…” |