· govt. provides :
i. public goods : housing, roads , hospitals etc.
ii. services : recreation, defense, sports etc.
Q : How does actions affect economy ?
· govt. actions (taxing/spending) alters the structure of incentives facing eco agents.
i. incentives : a/thing created in you to behave in certain ways (rewards / punishment).
ii. Eco agents : inc. both Ind. & companies , productive producing units in general. Involves savings, consuming, investing , selling etc.
B. Public Budgeting
· budgeting is the hard-core & the heart of politics as e/one want the shares.
· Involves :
i. where public money come ?
ii. how much should be spent & in what areas ?
· Participants :
1. The Guardians of the Public Purse :
1.1 The Parliament (law makers.)
1.2 MOF
1.3 The Auditor General (AG) : annexed by Parliament.
2. Spenders (spending unit) : ministries – budget maximizers.
Q : How They Interact ?
· After requesting the money , follow these stages :
1. Budget Formulation : MOF process the request & went to Parliament for budget proposal.
2. Budget Authorization : MPs examined and the parliament allocate the amount of money to dept & ministries.
3. Budget Implementation : MOF must make money available.
4. Budget Auditing : done by the AG.
Topic : Key Concepts
Capital Flight
· Speculation : a diversion of scarce resources (savings) from productive economic activities (industrial or agricultural) to unproductive uses. (Inflation encourage speculation).
· Money supply : total amount of money in economic . increase when govt. borrows from back which lead to monetary expansion.
· Types of borrowing :
a. bank-borrowing : from govt. central bank controlled by MOF.
b. Non-bank public (bond floatation).
Unemployment
· eco conditions where some parts of labor force have no jobs.
· Arise when supply of goods & services exceed total demands.
Q: Inflation is self-enforcing through expectation :
· based on human past experience.
· When inflation started & if employees expect more inflation in future through their past experience, their behaviour will demand more wages & salaries as price going up. This lead to more & higher inflation.
· The relationship between inflation & unemployment is inverse (opposite).
Balance of payment.
· ? : a statement of an economics or a country’s dealings or transactions with the rest of the world in a one year time.
· Involves import payments and export earnings.
· Trade balance account : results of imports & exports balance (surpluss & deficits or zero balance).
How to Achieve the 3 objectives ?
1. Fiscal (Budget) Policy
· policy of MOF.
· ? : changes in govt. spending as well as borrowing &/or taxation :
a. spending
b. borrowing
c. taxation
· Disinflationary (Deflation) Fiscal Policy :one way where govt. increase tax & reduce spending. Govt. use expansionary fiscal policy to reduce inflation :
a. govt. spending increase.
b. Tax cuts (esp. tax on companies.)
2. Monetary (Financial) Policy
· ? : policy of the Central Bank (CB) .
· includes :
a. CB
b. Commercial banks. (borrows money from CB with fixed interest & later on lend to public at a higher interests).
Expansory Monetary Policy (EMP)
· opposite of Tight Monetary Policy (increase tax rate)
· govt. reduce interest rate.
2 eco growth: GNP, only via eco growth that govt. have the money to offer social welfare. Too much money may will also kill the growth .
2. eco development: eco growth + social welfare/democratization/ecological.
2.1 social welfare : well being of the people . Supply via :
2.1.1 civil society : voluntarily
2.1.2 market : privates
2.1.3 state.
2.2 democratization : people’s in power.
2.3 Ecological : environment , govt. must take ecology into account.
