Balanced Budget

Balanced budget is a rare situation when a government's income which primarily comes from taxes and duties, etc., equals its total expenditures, such as defense, social security, science, energy and expenditure on infrastructure, etc.

Balanced budget is a situation which is in-between budget deficit and budget surplus. Budget deficit is when a government's expenditures exceeds its total income while budget surplus is a situation when a government's total income exceeds its total expenditures.

A government runs a balanced budget when it does not want to mess with the economy. While a budget deficit expands an economy and a budget surplus contracts it, a balanced budget on the other hand leaves the economy alone. Balanced budget means nuetral fiscal policy.

Formula

A balance budget is when

Government's Expenditures − Government's Income = 0

Example

The United States federal budget for financial 1913 and 1914 is a good example of balanced budget.

In financial year 1913 the government's expenditures amounted to $715 million while its income was $714 million. We can say that the government's total expenditures roughly equaled its total income.

In recent decades, we rarely see a balanced budget mostly because government are more actively using fiscal policy to influence the economy.

by Obaidullah Jan, ACA, CFA and last modified on

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