1

CHAPTER
13
ROLE OF
GOVERNMENT

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 ECONOMIC FUNCTION OF GOVERNMENT
2

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 3

1. BALANCED 2. SURPLUS 3. DEFICIT

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 4

TAX REVENUE NON-TAX REVENUE

SOURCES OF
REVENUE

NON-REVENUE RECEIPTS

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 GOVERNMENT REVENUE (cont.) 5

OBJECTIVES OF TAXATION

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 TYPES OF TAXES 6

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 7

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.) 8

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.) 9

REGRESSIVE TAX
Tax Rate

Tax which is imposed

at the decreasing rate
for all income levels.

Income

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 GOVERNMENT EXPENDITURE 10

GOVERNMENT OPERATING
EXPENDITURE

GOVERNMENT DEVELOPMENT
EXPENDITURE

General Defense and

administration Social Economic security
services services

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 PUBLIC DEBT 11

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 12

 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 13

MONETARY FISCAL
POLICY POLICY

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 14
Achieve a balance of
payment equilibrium

Maintain Achieve full

domestic price employment of
stability resources

Maintain a continuously Achieve higher

low structure rate of
of interest rates economic growth

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 15
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 16
POLICY

Quantitative Qualitative
Instruments Instruments

1.Open market
1. Selective credit
operations
2. Control
2.Legal cash reserve
requirement 3. Interest rate
3.Bank or discount rate 4. Special directive
4.Funding

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 17
Securing efficient Attaining and
allocation of maintaining full
economic resources employment

Controlling the equitable Accelerating

distribution the rate of economic
of income and wealth growth

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 18

EXPANSIONARY FISCAL POLICY

TYPES OF FISCAL POLICY

CONTRACTIONARY
FISCAL POLICY

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 INSTRUMENTS OF FISCAL POLICY 19

DISCRETIONARY AUTOMATIC
FISCAL POLICY FISCAL POLICY

1.Government 1. Transfer payments

expenditure 2. Taxes
2.Taxes

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