Fundamental of Economics

Public expenditure refers to the expenditure which a government incurs for 1. Its own maintenance 2. The society and the economy 3. Helping other countries. Classification of Public Expenditure: · Productive and Unproductive expenditure: Productive expenditure promotes the production of country and national income. For example, expenditure on agriculture, industry, education, transport etc. Unproductive expenditure does not promote the production of country and national income. For example, expenditure on protection against aggression from external and natural disasters etc. · Central, Provincial and Local expenditure: Expenditure by central Government is treated as central expenditure; expenditure by provisional Government is treated as provincial expenditure and expenditure by local Government is treated as local expenditure, i.e., union parishad, pauroshava etc. · Maintenance and Development expenditure: Money spent on the maintenance of internal

Public debt refers to borrowing by a Government from within the country or from abroad, from private individuals or association of individuals or from banking and non-banking financial institutions. Classification of Public Debt: · Internal and External debt: Internal debt is raised from within the country and external debt is owed to foreigners or foreign governments or institutions. · Productive and Unproductive debt: The productive debt is expected to create assets which will yield income sufficient to pay the principle and interest on the loan. In other words, they are expected to pay their way; they are self-liquidating. On the other hand, loans raise for war or protection against natural disaster do not create any asset; they are dead weight and are regarded as unproductive. · Short-term and Long-term debt: Short-term loans are repayable after short interval of time, e.g. treasury bills payable after three months, ways and means advances from the

Public Revenue and its Sources: Public revenue deals with the question what are the sources of government revenue, i.e. how much amount government will earn from each earning source. Main sources of public revenue are fee, commercial income, fine and compensation, income from government resources, issue of note, interest, public debts, no heir of any wealth and gift by any person, miscellaneous sources etc. Tax: A tax is a compulsory payment levied on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country. Two aspects of taxes follow from this definition: · A tax is a compulsory payment and no one can refuse to pay it. · Proceeds from taxes are used for common benefits or general ourposes of the state. Features of Tax: · Tax is non-penal. · It is not fee. Fee is given for getting specific direct benefits. · It is paid without any expectation of direct ben

Monetary Policy: There are mainly two important instruments with which objectives of macroeconomic policy can be achieved. It is worth noting that it is the central bank of a country which formulates and implements the monetary policy in a country. In some countries, the central bank works on behalf of the government and acts according to its directions and broad guidelines. However, in some countries the central bank enjoys an independent status and pursues its independent policy. Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilizing the economy at full-employment or potential output level by influencing the level of aggregate demand. More specifically, at times of recession monetary policy involves the adoption of some monetary tools which tend the increase the money supply and lower interest rates so as to stimulate aggregate demand in the economy. On the other hand, at times of inflation, monetary policy seeks to co