• Government

• Protective government

• Limited government

• Leviathan (big government)

• Proper sphere of government

• The size of government

• ALLOCATION FUNCTION. The provision of public goods, or the process by which total resource use is divided between private and public goods.

• DISTRIBUTION FUNCTION. Adjustment of the distribution of income and wealth to assure conformance with what society considers a “fair” or “just” state of distribution, here referred to as the distribution function.

• STABILIZATION FUNCTION. The use of fiscal policy as a means of maintaining high employment, a reasonable degree of price level stability, and an appropriate rate of economic growth. There is also the objective of stability in the balance of payments. We refer to all these objectives as the stabilization function.

• What is government? Why do we need government?

• What are the main functions of the government?

• What is economic stability? How does government stabilize

economy?

• How can government alleviate poverty?

• What is redistribution policy?

• The goal of full employment

• The goal of price stability

• The goal of economic growth and development

• The goal of just and equitible income distribution

• FISCAL POLICY. The use of taxation and government expenditures to effect changes in aggregate economic variables and to realize the goals of economic policy.

• FULL EMPLOYMENT. Full employment is a situation in which the optimal level of employment is reached with no underemployment and no excessive unemployment; a situation in which all workers who desire employment at the current real wage are employed.

• PRICE STABILITY. A situation in which there is no change in the overall price level- the average price of all goods, services and resources.

• ECONOMIC GROWTH. Economic growth is an increase in real GNP or real GNP per person through time.

• INCOME DISTRIBUTION. The distribution of GNP among people.

• SUSTAINABLE ECONOMIC DEVELOPMENT. Sustainable development can be defined as an increase in human well-being that is not later reversed: development that is lasting

• What is economic policy? What are the main economic policy instruments?

• Whar are automatic stabilizers?

• Explain inflationary gap on a graph.

• Explain keynesian fiscal policy dealing with a recession? And display a deflationary gap on a graph.

• What is restrictive fiscal policy?

• What is expansionary fiscal policy?

THE TYPES OF

UNEMPLOYMENT

• Open Unemployment

• Hidden Unemployment

• Frictional Unemployment

• Structural Unemployment

• Technological Unemployment

• Cyclical Unemployment

• UNEMPLOYMENT OF RESOURCES. A situation in which human or nonhuman resources that can be used in production are not so used.

• UNEMPLOYMENT RATE. The number of unemployed people, expressed as a percentage of the labor force.

• LABOR FORCE. It is the number of people holding or seeking jobs.

• CYCLICAL UNEMPLOYMENT. Cycical unemployment rises during recessions and falls as proeperity is restored.

• FRICTIONAL EMPLOYMENT. Unemployment resulting from the temporary job loss.

• STRUCTURAL UNEMPLOYMENT. Refers to workers who have lost their jobs because they have been displaced by automation, because their skills are no longer in demand, or for similar reasons.

• What are the most harmful effects of unemployment?

• What is full employment?

• How can we measure empleyment and unempleyment?

• What are the causes of unemployment?

• Do you think that full employment is a sound policy objective?

TYPES OF ECONOMIC

INSTABILITY

• Business cycle

• Inflation

• Deflation

• Depression

• Recession

• Stagnation

• Stagflation

• Taxflation

• BUSINESS CYCLES. Recurrent fluctuations in the level of business activity, such as prices, unemployment and economic growth rate.

• COUNTERCYCLICAL POLICY. Macroeconomic policy to balance the business cycles.

• STAGFLATION. The combination of stagnating growth and high inflation is known as stagflation.

• DEFLATION. A sustained decrease in the general price level.

• INFLATION. A sustained increase in the general price level.

• DEMAND-PULL INFLATION. Increases ın the price level caused by increases in the demnad for products and resources.

• COST-PUSH INFLATION. Increases in the price level caused by monopoly and/or union pressure or by decreases in the supply of products or resources.

• CREEPING INFLATION. Refers to an inflation that proceeds for a long time at a moderate and fairly steady pace.

• GALLOPING INFLATION. It refers to an inflation that proceeds at an exceptionally high rate.

• RECESSION. A period during which the total output of the economy declines.

• DEPRESSION. A severe, persistent contraction in business activity that may last for several years and result in 15 percent or more unemployment.

• What is the Keynesian of the business cycle? What solution to

the business cycle is suggested by the Keynesian theory?

• Explain the monetarist view of the business cycle? What do the

monetarists believe to be the major source of economic

instability?

THE DISTRIBUTION OF

INCOME

• Personal Income Distribution

• Functional Income Distribution

• Sectoral Income Distribution

• Regional Income Distribution

• Ex ante distribution

• Ex post distribution

• Absolute poverty

• Relative poverty

• Lorenz curve

• Negative income tax

• Affirmative action

• PRIMARY INCOME DISTRIBUTION. The primary (market) income distribution is the distrubution of incomes produced by factor markets and asset ownership before taxes and transfers. It is also called as ex ante distribution.

• SECONDARY INCOME DISTRIBUTION. It is the income distribution after taxes and transfers. It may be called as ex ante distribution as well.

• FUNCTIONAL DISTRIBUTION OF INCOME. The division of income among factors of production, especially between capital and labor.

• PERSONAL DISTRIBUTION OF INCOME. The way total personal income is divided up among households or income classes.

• Inheritance

• Work and leisure choices

• Capability = ability

• Discrimination in jobs

• Economic system

• Schooling and other types of training

• Work experience

• Luck

• Risk taking

• What is poverty? Explain the concepts of absolute and relative

poverty?

• What do you think would be the major effects of the negative

income tax?

• What are the causes of income inequalities?

• What is poverty line?

• What measures should be taken in order to mitigate poverty?

PUBLIC FINANCE (MAJOR SOURCES OF

GOVERNMENT REVENUES)

• Taxes

• User Charges (fee, tuition, tolls etc.)

• Borrowing (Domestic borrowing and external borrowing)

• Money Creation (1. Issuance of paper money 2. Borrowing from

the Central Bank.)

• Revenues from public utilities (electricity, water, gas production

units.)

• Revenues from public economic enterprises etc.

• Fines

• Social security contributons

• Fiscal monopolies etc.

• It is compulsory.

• Taxes are paid as a result of government sovereignty.

• There is no exact correlation between the amount paid and

the value of the public services from which the taxpayer

benefits.

• Taxes are paid in cash by individuals, corporations and

other organizatons to the government.

• Taxes finance government expenditures.

• Criterion of fairness and equity.

• Horizontal Equity and Vertical Equity

• Criterion of economic efficiency.

• Criterion of Simplicity.

• Criterion of Flexibility.

• Criterion of International Harmonization.

• Criterion of Changes in Tax Rules (Binding Principle)

• Criterion of Certainity

• Criterion of Enforceability

• Criterion of Convenience

• Equality

• Certainity

• Convenience of payment

• Economy in collection.

• The distribution of tax burden shoul be equitable. Everyone should be made to pay his “fair share.”

• Taxes should be chosen so as to minimize interference with economic decisions in otherwise efficient markets. Imposition of “excess burdens” should be minimized.

• Tax system should permit efficient and nonarbitrary administration and it should be understandable to the tax payer.

• Administration and compliance cost should be as low as is compatible with the other objectives.

1. Taxes on Goods and Services

(taxes on the production, sale, transfer of goods and services)

A. Value Added Tax

B. Excise Tax

C. Sales Taxes

D. Fiscal Monopolies

E. Customs and Import Duties

A. Taxes paid by households in respect of motor vehicles :Motor

Vechicles Tax

B. Taxes paid by others in respect of motor vehicles: Motor

Vehicles Purchase Tax

A. Personal Income tax

B. Corporate Income Tax

C. Capital Gains Tax

4. Payroll Taxes. (Taxes on employers based on payroll or

manpower.)

5. Taxes on wealth and immoveable property

A. Property Tax or Real Estate Tax

B. Inheritance and Gift Tax

Two major approaches to tax equity involve the benefit and ability-to-pay principles.

• Benefit Principle

• Ability-to-Pay Principle

• BENEFIT PRINCIPLE. According to the benefit principle, individuals who receive the most benefits from government-produced goods should pay the most for their production.

• ABILITY-TO-PAY PRINCIPLE. Accordint to this principle, individuals who are more able to pay should pay more taxes than those less able.

• HORIZANTAL EQUITY. It requires that equal tax treatment should be applied to the people in equal positions.

• VERTICAL EQUITY. It requires that different tax treatment shold be applied to the people in different positions.

• TAX SHIFTING. The shifting of a tax is the recovery by the

taxpayers of any part of their tax payment through pricing

adjustments.

• TAX INCIDENCE. Tax incidence is the ultimate resting of any

part of a tax upon some economic class who cannot shift it

further.

• Payment

• Impact

• Shifting

• Incidence

• Forward Shifting

• Backward Shifting

• Statutory Shifting

• Absolute Shifting

• Differential Shifting

• A tax, the burden of which cannot be easily shifted or passed on to some other person by the person on whom it is levied. Personal income, inheritance and poll taxes are examples of direct taxes.

• INDIRECT TAX. A tax, the burden of which can be fairly readily shifted or passed on to someone else by the person who is required by law to pay the tax to the government. Most excise taxes are indirect taxes.

1.The Micro-Economic Effects Of Taxes

• On work effort and labor supply

• On savings.

• On investment

• On consumption

2.The Macro-Economic Effects Of Taxes

• On economic growth and development

• On resource allocation

• On poverty and income distribution

• On employment

• On price stability

• On government revenues

An income tax may reduce or increase work effort, depending on

whether the substitution effect outweighs the income effect, or vice

versa

• Household saving as a percentage of income (the average

propensity to save) rises with income, but the marginal

propensity to save rises less. Since differences in the savings

impact of more or less progressive taxes depend on

differences in the marginal propensities, they are less

important than one might expect.

• Income taxes may also affect saving because they reduce

the net rate of return.

• A large part of the corporation tax tends to be reflected in

reduced corporate saving.

• Taxes tend to reduce the level of investment by reducing the

net rate of return.

• Investment credit may be used to stimulate investment.

PUBLIC FINANCE

(GOVERNMENT

SPENDING)

• Exhaustive Expenditures

• Nonexhaustive Expenditures

• Investment Expenditures

• Current Expenditures (Personnel Expenditures)

• Transfer Expenditures

• Social Expenditures

• General services

• National defense

• Foreign affairs

• Justice

• Education

• Health

• Welfare spending

• (transfers to poors, etc.)

• Police and fire protection

• Highways

• Housing and sanitation

• Transportation

• Energy

• Postal and telecommunication

• Pensions and social security

• Interest on general debt

• General administrative expenditures

• Rural development

• Culture/Tourism etc

GROWTH OF

GOVERNMENT

• Government purchases of goods and services as a percentage

of GNP

• Government employment as a percentage of total work force.

• Total government expenditures including transfer payments as a

percentage of GNP

• Total taxes as a percentage of GNP

• Increased Demand for Services by People.

• Population Growth

• Growth in real Per capita income.

• Need for Income Redistribution

• A Desire to Supply More Government Services.

• Politician’s Vote Maximizing Behaviour

• Bureaucrat’s Budget Maximizing Behaviour

• Special Interest Group’s “Rent Seeking” Behaviour

• Voters Utility Maximizing Behaviour

• Inefficiency in the Public Sector

• War and Increasing Defense Spending

• Urbanization

• German economist Adolph Wagner advanced his “ law ofever-

increasing public expenditures.” He based his law on “the

pressure for social progress and resulting changes in the

relative spheres of private and public economy.

According to Peacock and Wiseman, every few decades the

necessity to finance a war leads to a broadening of

governmnet growth.

MARKET FAILURE

• Lack of competition

• Externalities

• Public goods

• Economies of Scale and Natural Monopoly

• Economic Instability

• Poverty and need for fair income distribution

• Allocative inefficiency

• Lack of economic growth and development

• --------------------------

• Market economies suffer from severe business cycles.

• The market does not distrubute income quite equally.

• Where markets are monopolized, they allocate resources inefficiently.

• The market can not deal properly with the negative externalities.

• Market can not provide public goods, such as national defense.

• ----------------------------------

• POSITIVE EXTERNALITY. A positive externality is a benefit received by a person as a result of the actions of others.

• NEGATIVE EXTERNALITY. A negative externality is a cost received by a person as a result of the actions of others.

• COLLECTIVE CONSUMPTION GOOD. It is a good for which consumption by a consumer will not reduce the consumption of any other consumer.

• RENT SEEKING. It refers to unproductive activity in the pursuit of economic profit.

• FREE RIDER. An individual who is able to receive the benefits of a good and service without paying for it.

• COST-BENEFIT ANALYSIS. A process used to estimate the net benefits of a good or project, particularly goods and services proviede by government.

• Which economic activities should be undertaken by government?

Why?

• Which economic activities should be undertaken by private

sector? Why?

• Give some examples of public goods.

• Why is an externality considered a market failure?

• Explain the major types of public goods.

GOVERNMENTAL FAILURE

• The rational voter ignoranance: Voter ignorance and inability to recognize the costs and benefists fully.

• The rational voter irrelavance

• The power of special interests. rent seeking

• Political myopia (Shortsightedness effect)

• Inefficinecy in the Public Sector /Little entrepreneurial efficiency )

• Logrollling

• Imprecision in the reflection of consumer preferences

• Common ownership (Tragedy of Commons)

• Why does government fail? What are the sources of

governmental failure?

• Is market better than government?

• What are the costs of excessive government?

• What is optimal government?

• Is less government best? Or is big government best?

GLOBALIZATION

• Economic globalization

• Political globalization

• Cultural globalization

• Regionalization

• Regional trade blocs

• Global village

• Liberalization

• Globalization means the increased integration of world markets of goods, services and capital.

• Global economic integration -the widening and intensifying of links between the economies of industrial and developing countries- has accelerated rapidly. Underpining the intensification of these links -which include trade, finance, investment, technology, and migration- are several structural factors. The progressive liberalization of trade policies negotiated during consecutive rounds of trade talks -culminating in the Uruguay Round- has lowered tariffs and stimulated trade. The integration of the world economy through trade has been reinforced by increases in the private capital flows, particularly in the 1990s. And technological advances in transport and telecommunications have lowered the cost of operating globally and provided developing countries with new opportunities to benefit from the growing world economy.

• Openning of trade barriers (tariffs, quotas etc.)

• Trade agreements

• Regional economic integration (EU, NAFTA, APEC etc.)

• Export growth per capita

• International trade as a share of GDP

• Foreign direct investment as a share of GDP

• International capital flow

COMPETITIVENESS

• Competition

• Economic growth

• Openness

• Financial markets

• Quality

• Competitiveness signifies the ability of a national economy

to achieve sustained high rates of economic growth, as

measured by the annual change in gross domestic product

per person.

• Competitiveness depends very much upon the ability of a

nation to create an environment which favors sustained

value added creation. The term “sustained” is very

important. It emphasizes the long term dimension of

competitiveness.

• Openness of an economy to international trade and finance (International trade, foreign investment, openness of financial markets.)

• The Role of Government. (Size of government, taxation, economic intervention, bureaucracy etc.)

• Development of Financial Markets. (Cost of capital, interest rates, saving and investment ratios, credibility and risk rating)

• Quality Infrastructure. (Transport, telecommunications, power etc.)

• Quality of Science and Technology. (Knowledge workers, computer use, R&D, high technology etc.)

• Quality of Business Management. (Entrepreneurship, Total Quality Management etc.)

• Labor Market Flexibility (availability of basic skills, costs of labor, labor market regulations etc.)

• Quality of Judicial and Political Institutions (Rule of law, justice, anti-trust laws,property rights. etc.)

ECONOMIC FREEDOM

• Liberty

• Freedom

• Economic freedom

• Political freedom

• The dictionaries define “freedom” as “the absence of necessity, coercion, or constraint on choice or action”. The dictionaries defines “economic” as “ of, realting to, or based, on the production, distribution, and consumption of goods and services.” Therefore, economic freedom can be defined as the “absence of government coercion or constraint on the production, distribution, or consumption of goods and services. “

• The central elements of economic freedom are personal choice, protection of private property, and freedom of exchange. Individuals have economic freedom when;

• property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and

• they are free to use , exchange, or give their property to another as long as their actions do not violate the identical rights of others.

• In en economiaclly free society, the fundamental function of government is the protection of private property and the enforcement of contracts. When a government fails to protect private property, takes property itself without full compensation, or established restrictions that limit voluntary exchange, it violetes economic freedom of its citizens.

• Freedom of exchange (freedom to operate a business, freedom to participate in the market economy)

• Freedom of choice

• Freedom of consumption

• Freedom of saving

• Freedom of investment

• Freedom of working

• Freedom of transferring wealth

• Freedom of competition

• Freedom of international trade (freedom to trade internationally)

• International Trade Policy: Protectionism Vs. Free Trade. (Taxes on ınternational trade, Restrictions on the freedom of citizens to engage in capital transactions with foreigners.)

• Taxation Policy: Neutral Taxes Vs. Regulatory Taxes.

• Government Intervention. ( Size of government, The role and presence of PEE’s, regulations and controls, subsides etc.)

• Monetary Policy. ( Money creation of government, inflation rate, )

• Capital Flows and Foreign Investment

POLITICAL FREEDOM

AND DEMOCRACY

• Political freedom

• Civil Liberties

• Democracy

• Civil society

• Rule of law

• Secularity

• Freedom House, an independent think tank publishes Freedom in

the World: The Annual Survey of Political Rights and Civil

Liberties. This study aims to monitor the progress and decline of

political rights and civil liberties in about 200 countries and

about 50 related territories.

• It is an annual evaluation of political rights and civil liberties

everywhere in the world.

• Freedom to Vote

• Freedom to Establish Political Parties

• Freedom to Establish Organizations

• Freedom of Meeting

• Freedom of Speech

• Freedom of Assemby and Demonstration

• Freedom of Press

• Freedom of Movement

• Freedom of Residence

HUMAN DEVELOPMENT

• Economic growth

• Economic devleopment

• Social development

• Human development

• Human poverty

• Income poverty

• Longevity

• StandarD of living

• Per capita income

• GDP

• GNP

• Human development is the process of widening people’s choice’s and the level of well-being they achieve are at the core of the notion of human development. Such choices are neither finite nor static. But regardless of the level of development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living.

• Human development is measured by The UNDP. The Human Development Index developed by UNDP offers an alternative to GNP for measuring the relative socio-economic progress of nations. It enables people and their governements to evaluate progress over time.

• Longevity is measured by life expectancy.

• Knowledge is measured by a combination of adult literacy

(two-thirds weight) and mean years of schooling (one -third

weight).

• Standard of living is measured by purchasing power, based

on real GDP per capita adjusted for the local cost living

(purchasing power parity)

• HDI measures the average achiavements in a country in three

basic dimensions of human development - longevity, knowledge

and a decent standard of living.

• HDI is a more comprehensive socio-economic measure than GNP.

COUNTRY RISK AND

CREDIBILITY

• Risk management

• Country risk

• Credibility

• The purpose of country risk service is to provide complete

internationally comparable and regularly updated country risk

analysis for developing and highly indebted countries, and to

generate credit ratings of the relative risks from a

macroeconomic and financial standpoint.

• Political risk

• Economic policy risk

• Liquidity risk

• Currency risk

• Sovereign debt risk

• Banking sector risk

• Macroeconomic data. (Debt-service ratios, total debt service to

exports, total external debt to GDP, inflation rate, budget

deficit to GDP, etc.)

• Economic Policy.

• Political stability.

• Standard and Poors, New York

• Moody’s Investor Service, New York

• IBCA, London

• Institutional Investor, New York

• Euromoney

• Economist Intelligence Unit (EIU)

• Political Risk Services (PRS),