Notes And Study Material for Exam Papers

The main principles or canons that should govern public expenditure are: The principle of Maximum Social Advantage : The government expenditure should be incurred in such a way that it should benefit the community. The aim of public expenditure is the provision of maximum social advantage. If one section of society or one particular group receives the benefit of the public expenditure at the expense of society, then that expenditure cannot be justified in any way because it does not result in the greatest good to the public. So we can say that public expenditure should secure the maximum social advantage. The Principle of Economy : The principle of the economy requires that the government should spend money in such a manner that all wasteful expenditure is avoided. The economy does not mean miserliness or niggardliness. By economy, we mean that public expenditure should be increased without any extravagance and duplication. If the hard-earned money of the people, collected through...

The role of the state in economic affairs is a complex and controversial topic. The political thinkers are divided about the extent and mode of state interference in economic activity. The Anarchists hold the view that a day will come when people will be lifted so much morally that there would be no need of government at all. The society will be so much conscious of its duties that it will regulate its affairs itself. The view of the Anarchists seems to be only a dream and wishful thinking and is not likely to be realized at any stage. The Mercentillists believe that the state should actively participate in the social and economic spheres. The Physiocrates were the view that the state should not impose any artificial barriers on individual’s economic behaviour. They believe in the law of Nature. Adam Smith, the father of Political Economy, believes that the state should not interfere in the internal economic life of the citizens of a country as it hampers economic progress. H...

Public finance studies the income-getting and income-spending activities of the public bodies or the state. Private finance deals with the way a private person gets and spends his income. There are certain differences between the principles underlying public finances and those of private finances. These are explained below. 1.         Adjustment of Income and Expenditure: An individual usually adjusts his expenditure to his income. But the public authority generally adjusts its income to its expenditure. In other words, we can say that an individual cuts his coat according to his cloth. While the public authority first decides the size of the coat and then tries to produce cloth according to the size of its coat. The public authority prepares on estimate of the total expenditure to be incurred during a fiscal year and then devices ways and means to raise the required amount. The individual on the other hand tries to live within his own means...

When the value of imported visible and invisible items of trade exceeds the exported visible and invisible items of trade, the demand for titles to trade exceeds the supply of it, it creates a gap between the receipts and payments which pares the way for the out flow of gold reserves of the foreign exchange reserves of the past had depleted on it forces the country to borrow from abroad which in debits the country. Such a situation is known as disequilibrium in the balance of payment. Temporary and timely short term disequilibrium may not be the source of worry for any country, but the long term disequilibrium is really alarming. Following are the main causes of disequilibrium. 1)         Deficit in Export: The decline in exports results the decline in foreign exchange earnings. Fall in the exports may be due to geographical reasons i.e. draught, untimely rainfalls, floods, pests, water logging, salinity and soil erosion, shortage of irr...

Foreign trade means export and import of goods; and goods passing from one country to another have to be paid. The difference between the exports and imports of a country is called the balance of trade. When the value of exports of a country exceeds that of its imports the balance of trade is called favourable or positive. When the value of imports of country exceeds that of its exports, it is called unfavourable or negative balance of trade. The favourable balance of trade of a country enables it to earn gold from foreign countries to the amount of balance. When balance is unfavourable the country has to pay gold to foreign countries. For instance Pakistan exported goods worth Rs. 200 million to Iran and imported goods worth Rs. 150 million from Iran . Pakistan has a favourable balance of trade with Iran to the amount of Rs. 50 million. The means, Pakistan would realize this balance from Iran in terms of gold, as ultimately foreign payments are made in terms of gold. Balance o...

A different perspective on components of GDP is obtained by looking at the expenditure side of the national income accounts. The expenditure approach measures GDP as total spending on final goods and services produced within a country or nation during a specified period of time. Four major categories of spending are added to get GDP i.e. consumption, investment, government purchases of goods and services and net exports of goods and services. In symbols we can describe as Y = GDP = Total output or product = Total income = Total expenditure C = Consumption I = Investment G = Government purchases of goods and services NX = Net exports of goods and services With these symbols, we express the expenditure approach to measuring GDP as Y = C + I + G + NX    ------------------ (1) This equation is called income-expenditure identity because it states that income Y, equals total expenditure  C + I + G + NX. Let us discuss the components which co...

Gross Domestic Product ( GDP ) is the name we give to the total market value of the final goods and services produced within a nation or country during a given period of time. GDP is the most comprehensive measure of a nation’s total output of goods and services. It is the sum of the dollar values of consumption (C) gross Investment (I) government purchase of goods and services (G) and net exports (X) produced within a nation or country during a given period of time say year. In symbols we can express as GDP = C + I + G + X GDP is used for many purposes but the most important one is to measure the overall performance of an economy. Methods to Measure GDP 1.         Product Method of Measuring GDP : The product approach defines a nation’s Gross Domestic Product ( GDP ) as the market values of final goods and services newly produced within a nation during a fixed period of time. 2.       ...