Hw recovery of loan reduce the asset of the govt ? It will increase govt financial asset as nw govt will gt loan +int amt ryt ?
Why deficit budget is followed or is bttr than surplus ??
But on the other hand, the fall in the balance of debtors (loan) leads to simultaneous rise in the cash flows to the government (as loans are getting converted into cash**). Thus, in literal sense, we can say that recovery of loans reduces assets but in actual accounting sense, it is not affecting the net value of assets.
A deficit budget means government’s expenditure is more than its receipts and on the other hand, a surplus budget means government’s receipts are more than its expenditure. Normally, the concept of deficit budget is regarded good, particularly, if the government's expenditure is more due to spending on development works, such as construction of infrastructure, schools, hospitals, etc. This is because expenditure on such projects have long-run effect on the economic growth of a country. Besides this, the presence of such infrastructure will facilitate future growth and development. However, if the budget deficit is due to the fact that the government is spending more on financing recurring needs, such as administrative expenses, etc., then budget deficit is not desirable and is highly criticised.
**Note- It may seems that the loan amount (so forwarded by the government) will be lesser than the recovery amount (which is Principal amount + Interest), but actually this is not the case. You will get to learn the reason to this virtue in your higher studies of Economics, where, you will learn about the present value concept and volatility in the foreign exchange rates. Hence, to keep the matter simple, I am hereby restricting myself and at the same time would love to appreciate you to have such a higher order perspective at this stage.
Good Going and All the Very Best for the Exams!!
recovery of loan means you have recovered the amount given as loan along with interest.
nw u will not get interest on the loan given and even the principal amt. that was accrude has been received, hence the asset of govt. has reduced.
deficit budget is when govt. is spending more than what it has received.
the govt. spends on infrastructure of the country and other fruitful purposes.
hence when there is deficit budget it implies that more amt. is spent on economic development of the country which is good.
therefore deficit budget is followed.