PRINCIPLES OF ECONOMICS Third Edition Oxford Fajar Sdn

ECONOMIC FUNCTION OF GOVERNMENT IMPORTANT FUNCTIONS OF GOVERNMENT Adjust the allocation of resources Assist

TYPES OF BUDGET 1. BALANCE D BUDGET The government’s total expenditure is equal to

GOVERNMENT REVENUE TAX REVENUE NON-TAX REVENUE SOURCES OF REVENUE NON-REVENUE RECEIPTS PRINCIPLES OF ECONOMICS

GOVERNMENT REVENUE (cont. ) OBJECTIVES OF TAXATION PRINCIPLES OF ECONOMICS Third Edition © Oxford

TYPES OF TAXES DIRECT TAXES • Tax paid by the person on whom it

TYPES OF TAX STRUCTURE PROPORTIONAL TAX Tax Rate Tax which is imposed at the

TYPES OF TAX STRUCTURE (cont. ) PROGRESSIVE TAX Tax Rate Tax which is imposed

TYPES OF TAX STRUCTURE (cont. ) REGRESSIVE TAX Tax Rate Tax which is imposed

GOVERNMENT EXPENDITURE GOVERNMENT OPERATING EXPENDITURE GOVERNMENT DEVELOPMENT EXPENDITURE General administration Social services PRINCIPLES OF

PUBLIC DEBT The debt which a government owes to its nationals of other countries.

INTERNAL AND EXTERNAL SOURCES q 1. 2. 3. 4. q 1. 2. 3. INTERNAL

GOVERNMENT POLICY MONETARY POLICY PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd.

Achieve a balance of payment equilibrium Achieve full employment of resources Maintain domestic price

EXPANSIONARY MONETARY POLICY • Increasing money supply in the economy TYPES OF MONETARY POLICY

INSTRUMENTS OF MONETARY POLICY Quantitative Instruments 1. Open market operations 2. Legal cash reserve

Securing efficient allocation of economic resources Attaining and maintaining full employment OBJECTIVE OF FISCAL

EXPANSIONARY FISCAL POLICY TYPES OF FISCAL POLICY CONTRACTIONARY FISCAL POLICY PRINCIPLES OF ECONOMICS Third

INSTRUMENTS OF FISCAL POLICY DISCRETIONARY FISCAL POLICY 1. Government expenditure 2. Taxes PRINCIPLES OF

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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 PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 3

TYPES OF BUDGET 1. BALANCE D BUDGET The government’s total expenditure is equal to its total revenue. 3. DEFICIT BUDGET 2. SURPLUS BUDGET The government’s total expenditure is less than its total expenditure. The government’s total expenditure is more than its total revenue. PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 4

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. PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 7

TYPES OF TAX STRUCTURE PROPORTIONAL TAX Tax Rate Tax which is imposed at the same rate for all income levels. Income PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 8

TYPES OF TAX STRUCTURE (cont. ) PROGRESSIVE TAX Tax Rate Tax which is imposed at the increasing rate for all income levels. Income PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 9

TYPES OF TAX STRUCTURE (cont. ) REGRESSIVE TAX Tax Rate Tax which is imposed at the decreasing rate for all income levels. Income PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 10

GOVERNMENT EXPENDITURE GOVERNMENT OPERATING EXPENDITURE GOVERNMENT DEVELOPMENT EXPENDITURE General administration Social services PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 Economic services Defense and security All Rights Reserved 13– 11

PUBLIC DEBT The debt which a government owes to its nationals of other countries. INTERNAL SOURCES OF PUBLIC DEBT PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 EXTERNAL SOURCES All Rights Reserved 13– 12

INTERNAL AND EXTERNAL SOURCES q 1. 2. 3. 4. q 1. 2. 3. INTERNAL Borrowing from citizen Borrowing from financial institutions Loans from the central bank Loans from commercial bank EXTERNAL International money market Currency loans from foreign government Loans from international financial institutions PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 13

Achieve a balance of payment equilibrium Achieve full employment of resources Maintain domestic price stability OBJECTIVE OF MONETARY POLICY Maintain a continuously low structure of interest rates PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 Achieve higher rate of economic growth All Rights Reserved 13– 15

EXPANSIONARY MONETARY POLICY • Increasing money supply in the economy TYPES OF MONETARY POLICY CONTRACTIONARY MONETARY POLICY • Decreasing money supply in the economy PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 All Rights Reserved 13– 16

INSTRUMENTS OF MONETARY POLICY Quantitative Instruments 1. Open market operations 2. Legal cash reserve requirement 3. Bank or discount rate 4. Funding PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 Qualitative Instruments 1. 2. 3. 4. Selective credit Control Interest rate Special directive All Rights Reserved 13– 17

Securing efficient allocation of economic resources Attaining and maintaining full employment OBJECTIVE OF FISCAL POLICY Controlling the equitable distribution of income and wealth PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 Accelerating the rate of economic growth All Rights Reserved 13– 18

INSTRUMENTS OF FISCAL POLICY DISCRETIONARY FISCAL POLICY 1. Government expenditure 2. Taxes PRINCIPLES OF ECONOMICS Third Edition © Oxford Fajar Sdn. Bhd. (008974 -T), 2013 AUTOMATIC FISCAL POLICY 1. Transfer payments 2. Taxes All Rights Reserved 13– 20