Summary
Chapter 1 summary
- Course
- EKN 310
- Institution
- University Of Pretoria (UP)
Summary of 9 pages for the course EKN 310 at UP (Chapter 1 summary)
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Chapter 1The public sector in the economy
Public economics
Looks at the role of government in the overall economy → government plays a central
role in resource allocation and distribution.
The study of the nature, principles and economic consequences of expenditure,
taxation, financing, and regulatory actions undertaken by the non-profit government
sector of the economy.
Most important tools of the government to influence economic outcomes → called the
instruments of fiscal policy → instruments are expenditure, taxation (government
income), financing (is the difference between government expenses and revenue,
deficit financing if expenses exceed income), regulatory actions (not providing goods
and services, but providing a framework to ensure everything is done according to the
rules)
We look at the analysing the nature and impact of the instruments of fiscal policy.
Instruments of fiscal policy
- Expenditure, taxation, financing → entails procurement and spending of private
funds by the government
o This is the direct mobilization and allocation of scarce resources.
o The government gets involved directly.
o E.g spending of income tax on primary healthcare, borrowing of funds to
build an irrigation dam or a highway.
- Regulation → enacting a law to allocate private resources that would apply in
the absence of government.
o The allocation of resources is influenced directly.
o The government gets involved indirectly.
o E.g Banning smoking in public places.
▪ It is still the individual’s decision to smoke, but the government
intervenes to help ensure the health of those who do not choose to
smoke.
o E.g regulation of government forcing the manufacturers of vehicles to
install platinum catalysts in the exhaust pipes of vehicles.
▪ Reduces carbon monoxide and regulations that prescribe the
behaviour of natural monopolies (such as electricity supply)
Notes by Georgia Taylor EKN 310 1
, Perspectives on the role of government
Smith → laissez faire (leave alone approach) → fair approach → there should be
freedom for individuals to decide on economic outcome and government should work
to “level the playing field” → the government should provide the basics for economy to
prosper → provide services and should limit their influence to the absolute minimum,
allowing the economy to grow on its own.
Marx → socialism → government should be more involved → most or all resources should
be given to government → economic outcomes are decided by government policies.
Socialism has had very limited success → however, it gives a more equal outcome in
terms of income after everything is taken into account.
Keynesian approach → interventionist → developed after great depression (there was a
lack of economic activity worldwide) → the government needs to have a more
comprehensive role → should be involved in investment expenditure and makes sure
that there are enough services provided for economies to grow.
Monetarist approach → states there should be limited intervention of government →
money supply is only allowed to expand in accordance with inflation and growth rate
per annum (to get high inflation that was brought about by the Keynesian approach
under control)
RELATING TO TODAY → there is a big need for government intervention after covid →
gets the economy going again and ensures income for households → e.g the Biden 1.9
trillion funds that is going to be given to businesses etc.
Views on the role of government in the economy
Individualistic Public Interest Developmental State
(Mechanistic) (Collectivist/Organic)
Key Maximisation of Maximisation of Combination of
Characteristic individual welfare social welfare or individual & social
(free market national interest interests
economy)
Role of Correcting market Distribution of Selective intervention
Government failure income
Policy Focus Efficiency of resource Combating poverty Way in which political &
allocation and and equity issues economic control is
economic growth (distribution of obtained & exercised
income).
Individualistic views of government → the government is seen as a reflection of
individual preferences.
Developmental state → state where politics have concentrated sufficient power,
autonomy, and capacity at the centre of shape, pursue and encourage the
achievement of explicit development objectives.
Notes by Georgia Taylor EKN 310 2
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