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Economics - fiscal policy questions- June 2002 2887 4) a) Explain the factors that might affect the size of the UK government's budget deficit or surplus. The government's annual budget sets out the planned income and expenditure of the government for forthcoming year, together with a statement of the revenue and expenditure for the past financial year. A government's budget deficit or surplus refers to either when its expenditures (the purchases of goods and services, plus its transfers (grants) to individuals and corporations) are greater than its tax revenues(; a deficit). Or when tax revenues exceed government purchases and transfer payments, the government has a budget surplus. there is also a neutral budget where government income and spending are the same and total demand in the economy remains constant. whether a budget is running a deficit or a surplus it is usually used deliberately as an instrument of economic policy, planned in...

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