The budget plays a big part in fiscal policies. Depending on what fiscal policies have been employed by the government depend on the position of the budget. If the government spends more than it receives through tax receipts then it will have a budget deficit. If it receives more than it spends then there will be a budget surplus.Two other terms that come about when talking about the budget are the following:
- Public Sector Net Cash Requirement (or PSBR) - This is an account of how much the government has to borrow in order to balance the budget.
- Public Sector Debt Repayment (or PSDR) - This is when the budget is in surplus and the government can pay back some loans.
- A rise in taxes / a cut in government spending leads to a fall in aggregate demand.
- A cut in taxes / a rise in government spending leads to a rise in aggregate demand.