ROLE OF GOVERNMENT

2. CHAPTER 13 ROLE OF GOVERNMENT

3. Adjust the allocation of resources Assist private sector to ensure economic stabilization ECONOMIC FUNCTION OF GOVERNMENT Create a business environment IMPORTANT FUNCTIONS OF GOVERNMENT Redistribute income and wealth among the population Provide a legal and social framework for the effective operation of an economy

4. TYPES OF BUDGET BALANCED BUDGET The government’s total expenditure is equal to its total revenue. SURPLUS BUDGET The government’s total expenditure is less than its total expenditure. DEFICIT BUDGET The government’s total expenditure is more than its total revenue.

5. NON-TAX REVENUE TAX REVENUE GOVERNMENT REVENUE SOURCES OF REVENUE NON-REVENUE RECEIPTS

6. INCOME EQUITABLE DISTIBUTION OF INCOME REDUCTION OF HARMFUL CONSUMPTION REGULATION OF FOREIGN TRADE CONSERVATION OF RESOURCES GOVERNMENT REVENUE (cont.) OBJECTIVES OF TAXATION

7. DIRECT TAXES • Tax paid by the person on whom it is levied which cannot be passed on to another person. TYPES OF TAXES TYPES OF TAXES • INDIRECT TAXES • Burden of tax can be passed on to another person.

8. TYPES OF TAX STRUCTURE PROPORTIONAL TAX Tax Rate Tax which is imposed at the same rate for all income levels. Income

9. TYPES OF TAX STRUCTURE (cont.) PROGRESSIVE TAX Tax Rate Tax which is imposed at the increasing rate for all income levels. Income

10. TYPES OF TAX STRUCTURE (cont.) REGRESSIVE TAX Tax Rate Tax which is imposed at the decreasing rate for all income levels. Income

11. GOVERNMENT OPERATING EXPENDITURE GOVERNMENT EXPENDITURE GOVERNMENT DEVELOPMENT EXPENDITURE General administration Defense and security Social services Economic services

12. The debt which a government owes to its nationals of other countries. PUBLIC DEBT INTERNAL SOURCES SOURCES OF PUBLIC DEBT EXTERNAL SOURCES

13. INTERNAL SOURCES Borrowing from citizen Borrowing from financial institutions Loans from the central bank Loans from commercial bank

14. EXTERNAL SOURCES International money market Currency loans from foreign government Loans from international financial institutions

15. GOVERNMENT POLICY MONETARY POLICY FISCAL POLICY

16. To achieve a balance of payment equilibrium To achieve full employment of resources To maintain domestic price stability OBJECTIVE OF MONETARY POLICY To maintain a continuously low structure of interest rates To achieve higher rate of economic growth

17. EXPANSIONARY MONETARY POLICY • Increasing money supply in the economy TYPES OF MONETARY POLICY • CONTRACTIONARY MONETARY POLICY • Decreasing money supply in the economy

18. INSTRUMENTS OF MONETARY POLICY Quantitative Instruments Qualitative Instruments • Open market operations • Legal cash reserve requirement • Bank or discount rate • Funding • Selective credit • Control • Interest rate • Special directive

19. Securing efficient allocation of economic resources Attaining and maintaining full employment OBJECTIVE OF FISCAL POLICY Controlling the equitable distribution of income and wealth Accelerating the rate of economic growth

20. EXPANSIONARY FISCAL POLICY TYPES OF FISCAL POLICY CONTRACTIONARY FISCAL POLICY

21. INSTRUMENTS OF FISCAL POLICY • DISCRETIONARY • FISCAL POLICY • Government expenditure • 2. Taxes • AUTOMATIC • FISCAL POLICY • Transfer payments • Taxes