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Budgeting and Financing - Essay Example

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Summary to essay on topic "Budgeting and Financing"
Q.No.1. Why do many budget projections end up being less than accurate Explain the role of changing legal and political environment in altering budgetary decisions. When changes to the budget are necessary, three options are possible: 1) increase funds; 2) decrease funds; or 3) reallocate funds…
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Budgeting and Financing
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Download file "Budgeting and Financing" to see previous pages... No matter how one refer to it, it's a tool to help him/her to prioritize spending and manage money-no matter how much or how little he/she has. A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession.
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On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy. Fiscal deficit is an economic phenomenon, where the Government's total expenditure surpasses the revenue generated. It is the difference between the government's total receipts (excluding borrowing) and total expenditure. Fiscal deficit gives the signal to the government about the total borrowing requirements from all sources. The fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowing). The elements of the fiscal deficit are (a) the revenue deficit, which is the difference between the government's current (or revenue) expenditure and total current receipts (that is, excluding borrowing) and (b) capital expenditure. The fiscal deficit can be financed by borrowing from the Reserve Bank of UK (which is also called deficit financing or money creation) and market borrowing (from the money market that is mainly from banks).
It is the fund used by an establishment to produce physical assets like property, equipments or industrial buildings. Capital expenditure is made by the establishment to consistently maintain the operational activities.
Arguments: Fiscal deficit lead to inflation
According to the view of renowned economist John Maynard Keynes, fiscal deficits facilitate nations to escape from economic recession. From another point of view, it is believed that government needs to avoid deficits to maintain a balanced budget policy. In order to relate high fiscal deficit to inflation, some economists believe that the portion of fiscal deficit.
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Financial advisors recommend that the Government should not promote disinvestment to reduce fiscal deficits. Fiscal deficit can be reduced by bringing up revenues or by lowering expenditure.
Logically, there are two ways in which the fiscal deficit can be reduced - by raising revenues or by reducing expenditure. However given the character of our State and the constraints of a liberalized economy, the government has not increased revenues. In fact, in budget after budget the government has actually given away tax cuts to the rich. Even when it has tried to raise revenues, it has been through counterproductive means like disinvestment. The main impact of the policy of reduced fiscal deficits has therefore been on the government's expenditure. This has had a number of effects. First, government investment in sectors such as agriculture has been cut. Secondly, expenditure on social sectors like education, health and poverty alleviation has been reduced leading to greater hardship for the poor already bearing the brunt of liberalization. Perhaps most importantly, in an economy going through a recession the government is not allowed to play any role in boosting demand.
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