Account and capital account and these deficits are financed by net borrowing and changes in

The money supply.

The importance of the budget balance and how it is financed is that it may affect levels of

Demand and prices in the economy. But a mere change in prices does not result in an adequate

Change in the budget. The balanced budget multiplier is of great importance. It is the effect upon

The national income of equal changes in government expenditure and revenues. If government

expenditure is increased by ￡100 million and income-tax rates are increased to raise an additional

￡100 million in revenue, aggregate demand may not, as might be expected, remain the same since,

although personal disposable income has been reduced by ￡100 million, some of that income would

Have been saved, whereas all the increase in government expenditure results in increased demand.

If the savings ratio were 10 per cent, then the additional demand would be ￡10 million, which

Would have a multiplier effect upon the national income.

Vocabulary Notes to Text 14.7.1.5

Public finance — государственное финансирование

Net borrowing — чистое заимствование (прямой заем)

Revenues — доходные статьи

Disposable income — чистый доход, доход после уплаты налогов

(!) The Balanced Budget

Match the following terms with the correct definition

Work with a partner.

Balanced budget 2. balance of payments3