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CHAPTER 13
ROLE OF GOVERNMENT
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ECONOMIC FUNCTION OF
GOVERNMENT
IMPORTANT FUNCTIONS OF GOVERNMENT
Adjust the allocation of resources
Assist private sector to ensure economic stabilization
Create a business environment
Redistribute income and wealth among the
population
Provide a legal and social framework for the
effective operation of an economy
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TYPES OF BUDGET
1. BALANCED 2. SURPLUS DEFICIT
3.
BUDGET BUDGET BUDGET
The government’s The government’s The government’s
total expenditure total expenditure total expenditure
is equal to its is less than its is more than its
total revenue. total expenditure. total revenue.
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GOVERNMENT REVENUE
TAX
TAXREVENUE
REVENUE NON-TAX
NON-TAXREVENUE
REVENUE
SOURCESOF
SOURCES OF
REVENUE
REVENUE
NON-REVENUE
NON-REVENUERECEIPTS
RECEIPTS
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GOVERNMENT REVENUE
(cont.)
OBJECTIVES OF TAXATION
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TYPES OF TAXES
DIRECT TAXES
• Tax paid by the person on whom it is levied which
cannot be passed on to another person.
TYPES OF TAXES
INDIRECT TAXES
• Burden of tax can be passed on to another
person.
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TYPES OF TAX STRUCTURE
PROPORTIONAL TAX
Tax Rate
Tax which is imposed
at the same rate for all
income levels.
Income
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TYPES OF TAX STRUCTURE
(cont.)
PROGRESSIVE TAX
Tax Rate
Tax which is imposed
at the increasing rate
for all income levels.
Income
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TYPES OF TAX STRUCTURE
(cont.)
REGRESSIVE TAX
Tax Rate
Tax which is imposed
at the decreasing rate
for all income levels.
Income
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GOVERNMENT EXPENDITURE
GOVERNMENT OPERATING
EXPENDITURE
GOVERNMENT DEVELOPMENT
EXPENDITURE
General Defense and
administration Social Economic security
services services
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PUBLIC DEBT
The debt which a government
owes to its nationals
of other countries.
INTERNAL EXTERNAL
SOURCES
SOURCES SOURCES
OF
PUBLIC
DEBT
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INTERNAL AND EXTERNAL
SOURCES
INTERNAL
1. Borrowing from citizen
2. Borrowing from financial institutions
3. Loans from the central bank
4. Loans from commercial bank
EXTERNAL
1. International money market
2. Currency loans from foreign government
3. Loans from international financial institutions
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GOVERNMENT POLICY
MONETARY FISCAL
POLICY POLICY
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Achieve
Achieve aa balance
balance of
of
payment
payment equilibrium
equilibrium
Maintain
Maintain Achieve
Achieve full
full
domestic
domestic employment
employment
price
price stability
stability of
of resources
resources
Maintain
Maintain aa Achieve
Achieve higher
higher
continuously
continuously lowlow rate
rate of
of
structure
structure economic
economic growth
growth
of
of interest
interest rates
rates
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EXPANSIONARY MONETARY POLICY
• Increasing money supply in the economy
TYPES OF MONETARY POLICY
CONTRACTIONARY MONETARY POLICY
• Decreasing money supply in the economy
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INSTRUMENTS OF
MONETARY POLICY
Quantitative Qualitative
Instruments Instruments
[Link]
1. Selective credit
operations
2. Control
[Link] reserve
requirement 3. Interest rate
[Link] or discount rate 4. Special directive
[Link]
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Securing
Securing efficient
efficient Attaining
Attaining and
and
allocation
allocation of
of maintaining
maintaining full
full
economic
economic resources
resources employment
employment
Controlling
Controlling the
the Accelerating
Accelerating
equitable
equitable distribution
distribution the
the rate
rate of
of
of
of income
income and
and wealth
wealth economic
economic growth
growth
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EXPANSIONARY FISCAL POLICY
TYPES OF FISCAL POLICY
CONTRACTIONARY
FISCAL POLICY
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INSTRUMENTS OF FISCAL
POLICY
DISCRETIONARY AUTOMATIC
FISCAL POLICY FISCAL POLICY
[Link] 1. Transfer payments
expenditure 2. Taxes
[Link]
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