Topic 4: Role of GovernmentSophian bin Sout

Part 1: Economic Function

Economic Function

Providing legal and social FRAMEWORK

Sets legal status of business enterprise, ensure

rights to private ownership and allows the making

and enforcement on contracts.

Creating BUSINESS ENVIRONMENT

Healthy business environment has to be created in

the market to promote the competition

Economic Function

Redistribute & Reallocate INCOME & WEALTH

Government to reallocate the income and wealth in

a fair way trough a variety of policies and

programmes.

Increase the allocation of RESOURCES

Country’s economics resources should be utilised

efficiency to increase output.

Economic Function

Creating a stable ECONOMIC INVIRONTMENT

Stable economic environment is important to

encourage investment. Peaceful environment and

political stability are important to the

livelihood of the citizen.

Controlling the PRICE

Inflation affect the economics growth and also

reduce the purchasing power of the consumers.

Government control by monitoring the price

movement.

Economic Function

Increasing Government WELFARE ACTIVITIES

Responsible of providing public facilities for the

low income consumers. Government to subsidise the

medical costs so the publics has to pay only low

charges.

Part 2: National Budget

Surplus Budget

Deficit Budget

Which estimated

revenue of

government during

the year is

greater than

anticipated

expenditure

Government

expenditures

exceed government

tax revenue in a

given year.

(running a budget

deficit)

Government Expenditure and Revenue

National Income

Balanced

Budget

Government Expenditure

Surplus

Budget

Deficit

Budget

Part 3: Sources of Government Revenue

Revenue

Tax

Revenue

Non Tax

Revenue

TaxDirect Taxes Indirect Taxes

Direct Taxes

Personal Income Taxes

Company Income Taxes

Petroleum Income Taxes

Indirect Taxes

- Collected mainly by the

Royal Customs and Excise

Department.

- Where part or all of the

burden tax can be

transferred to another

party

- Examples: export duty,

import duty, excise duty,

sales tax and service tax

Revenue

Non Tax

- Revenue from non-tax source

- Revenue from government service, fees for

issue of license and permit, sales on

government asset, rental of government

property, interest and returns on

government investment, fines, fees and

penalties, contributions from foreign

governments and international agencies

and cash royalty from petroleum and gas

Part 4: Government Expenditure

Operating or Management Expenditure

Operating or management expenditure is a current expenditure for the purpose of government administration.

Include government spending in various government departments to maintain services such as payment of government salaries and purchase of office equipment and motor vehicles for government use.

Government Development Expenditure

Development expenditure is the investment expenditure by the government which involves expansion in the physical capital of a country for example government expenditure in development project that are able to increase economic growth such as construction of road, school and hospitals.

Part 5: National Debt

Internal Sources

1. Borrowing from citizen through the sale of securities, bond and saving certificates to citizens.

2. Borrowing from financial institution such as insurance companies by investing their resources in the purchase of government securities

3. Loans from the central bank, where he central bank purchase government securities, bond and debentures from the government.

4. Loan from commercial banks, where the commercial banks invest a part of their deposits in government bond and securities to fulfil the liquidity requirement.

External Sources

1. International money markets, such as some foreign exchange banks in Paris, London and New York, which have big deposits to lend any government requesting loans.

2. Currency loans from foreign governments, such as the USA, UK, Germany and Japan, for the supply of needed goods. The loan are documented in contracts.

3. Loan from international monetary financial institutions, such as the International Monetary Fund (IMF).

Break Quiz

Quiz 1: List the advantages and disadvantages of National Debt, Domestic Loan and Foreign Loan

Advantages Disadvantages

National Debt

Domestic Loan

Foreign Loan

Part 6: Government Policy

Fiscal Policy

Objectives Types

Monetary Policy

Objesctive Types

Instrument of Monetary Policy (Quantitative)

Min. Liquidity

Req.

Need for statutory reserves

OMOinstrument Discount Operation

Interest RateFunding

Instrument of Monetary Policy (Qualitative)

Instruments

Moral Persuasion

Selective Credit

Controls

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