Explain The Scope Of Public Finance And Its Nature?


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Rebecca Hunt answered
In summary, public finance is the revenue and the expenditure of the public authorities. Its scope covers the government effects on the efficient allocation of resources, macroeconomic stabilization and the distribution of income. Each of these effects contributes equally toward the broader subject of public finance.

• Government effects on the efficient allocation of resources. Economic efficiency occurs when resources are used in a way that best maximizes the production of goods and services. If a government has helped create an efficient economy, it means that more goods and services can be provided with the use of less resources, i.e. Nothing more can be achieved with the resources that are available. Other descriptions of economic efficiency include; that no additional output can be made without increasing the input, no one can be made better off without first putting someone else out and that production proceeds at the lowest possible cost per unit.
• Government effects on macroeconomic stabilization. Macroeconomics deals with the structure, behavior, performance and decision making of the entire economy. These decisions are often made by the government figures and the effects of these decisions will therefore have an impact on the entire economy. These economies can be on a national, international or global scale. In terms of macroeconomic stabilization, governments attempt to avoid major economic shocks by making small and frequent adjustments through policy changes. These changes will hopefully maintain stability and continue a growth of the economy.
• Government effects on the distribution of income.  In the modern economy, the distribution of income is concerned across individuals and households. Previously in history this distribution was concerned with income spanning land, labor, production and capital. Governments try to balance out the effects of inequality and economic growth to ensure equality and fairness.

These three factors contribute towards discovering the scope of public finance. They come together to create a general definition of public finance dealing with the revenue and expenditure of the public authorities.

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