IMPORTANCE OF PUBLIC EXPENDITURE

I n today dynamic world, the importantance of public expenditure increasing not only to maintain law and order but also for the growth, stability of the economy and weal fear of the state. The importance of the public expenditure is explained below.

1. DEFENSE
Due to the increasing cost of new weapons, sophisticated tanks and guns, modernization of defense forces a large part of the total expenditure is needed.

2. WELFARE SCHEMES
Since wage is under developed countries are low, a number of welfare schemes are under take by the government, such as free or subsidized health services, child welfare, welfare of the handicapped, subsidies on food and housing, special schemes for the unemployed, for scheduled castes and tribes as in Nepal etc.

3. POPULATION GROWTH
Population has been expanding fast in developing countries. The population theory of Malthus has been operating in such countries. A large amount has to be spent on child welfare, nutrition, social security measures, public health service, family planning programmers such as free supplies of contraceptives etc.

4. INDUSTRIAL DEVELOPMENT
A developing country need industrial development both in the private and public sectors cheeps credit to small-scale industries, supply of raw materials at concessional rates, expert subsidies, tax concessionals for industries in the backward regions, setting up of strategic industries in the public sector, etc has increased the importance of public expenditure.

5. EDUCATION
Illiteracy is rampant in developing countries so public expenditure an account of education, art, culture, scientific service and research has increased considerably.

CONCEPT OF INFLATION & DIFLATION

Inflation Purchasing power of people expands with increase in money income supply of goods and services doesnot increase to the same extend. This brings about the economic disequilibrium, which is known as inflation.There are various reason of inflation. Inflation occurs due to the following reasons:1. Demand- pull inflationIf the aggregate demand for goods and services exceed the supply of these goods and services, it is called damand-pull inflation. It occurs due to the following reasons which are given below:a) Reduction of taxation: If the government reduces the rates, it will increase purchasing power of people due to increase in disposable income of people. Consequently, the consumption expenditure and inflation occurs.b) Miscellaneous: There are other of demand-pull inflation, such as increase in private expenditure, shortage of goods and services in the market, increasing the volume of exports, repayment of debts etc. all above mentioned factors creates the problem of excess of demand over supply of goods and services and finally inflation occurs.2. Cost-push inflation: If the price of commodities rises due to the rise in cost of factors and raw materials, the inflation is called cost-push inflation. In cost push inflation, general price will be high and aggregate supply will be low as compared to aggregate demand for goods and services. Following are the causesof inflation;a) Increase in wages: Sometimes price of goods and services increase rapidly due to rise in wage rate of labor. If the trade unions are strong in the country, they demand more wages to maintain real wages which increases the cost of production and inflation occurs, which is also known as wages push inflation.b) International reasons: In the context of international trade, most of developing countries like Nepal are dependent on for raw materials, fuel energy, consumer goods etc. If the price of such goods increases in foreign country, obviously the price of such products increases in the country.DeflationPrice decline adversely affects employment condition. It creates unemployment which brings deflation. It is also known as disinflation.Following arethe causes of deflation:1. Decrease in money supply: Deflation occurs due to the low supply of money in the economy. When the central bank or other financial institutions does not issue sufficient amount of money in comparison to goods and services produced in the economy, then there will be less velocity of money or circulation of money and finally deflation occurs.2. Control of credit: One of the major functions of central bank is to control on credit creation to the commercial banks. The notice may circulate by central bank to commercial banks for increasing the ratio of cash reserved fund. It creates the deflation in the economy.3. Increase in Tax Rate: Sometimes government may impose high direct tax rate to the people due to various reasons such as control on inflation, increase in public expenditure, fulfilling war and emergency expenses etc. The high burden of tax on people lacks the circulation of money in the economy, which creates deflation and as a result deflationary situation appears in the economy.

INDEX NUMBER OF MONEY

Value of money changes from time to time according to variation in prices of different commodities. All prices do not change in the same extend. Some may rise or fall of remain constant. The degree of changes in price may differ from commodity to commodity.Index number is an instrument to measure change in value of money according to change in prices. Generally index number takes the from of table.Types of Index Number:In general there are two types of index number:i) Simple Index NumberThe index number is constructed by giving equal importance or weighted to all commodities is called simple index number. In the simple index number, we assume base year equal to 100. According to this method, price index number is the outcome of the sum of prices for the current year divided by the sum of actual prices for the base year.ii) Weighted Index NumberThe index number constructing by giving weighted to various items as per their importance is called as weighted index number. Simple index number just gives equal importance to all commodities. Since, weighted index number are constructed on the basis of importance of commodities to the people, it measures accurate change in the value of money. In this method, different weights are assigned to different items according to their relative economic importance. There are different formulae to calculate index number by assigning different weights to different commodities.Importance of Index Numberi) Measurement of changes in cost of livingWhen a price of commodity goes up, cost of living rises. If prices fall cost of living also fall.ii) Study of fluctuationBy index number we can measured the rate of inflation and deflation.iii) Wage policy formulationGovernment changes wage policy on the basis of index number. If price level rises then government increases the wage level.iv) Government policy formulationGovernment has to formulate monetary and fiscal from time to time on the basis of price level.v) Business forecastBusiness is a matter of forecast. Prices may rise or fall in future. On the basis of past and present facts the future expectation can be made on the basis of index number.Difficulties in constructing Index Numberi) Selection base yearOne should be serious while selecting base year for index number. It should be normal year. It should not be fluctuated by any abnormal factors such as war, flood, earthquake etc. It is difficult task to select such.ii) Problem of weightTaking appropriate weight from the selected commodities is another difficulty of constructing index number. There should be accuracy and reliability in measuring the standard of weight commodities.iii) Collection of dataAnother difficulty of constructing index number is collection of data from the representative commodities. It is also difficult to find the reliable and authentic source of data.

ATM

ATM stands for Automated Teller Machine. It is a latest technology in world providing by the banks to their customer to withdraw cash immediately at any place. Now a day's in Nepal also it is most familiar to all the people. It is electrical use switching technology that organies digital data into 53-byte cell units and transmits them over a physical medium using digital signal technology. Individually, a cell is processed a synchronously relative to other related cells and is queued before being multiplexed over the transmission path.It is designed to be easily implemented by hardware rather than software, faster processing and switch speeds are possible. The prespecified bit rates are either 155.520Mbps or 622.080Mbps. Speeds on ATM networks can reach 10 Gbps. Along with synchronous optical networks and several other technologies; ATM is a key component of broadband ISDN.It is also known as a machine that bank customers use to make transactions without a human teller.There are a growing number of banks that are providing free ATM cards to their customer. The customer who withdraw amount from the customer who have the account in that bank ATM can't cut the amount if customer are taking from other banking at that time bank are take some amount from customer account. From this kind of facility customer feel easy and they don't have to carry many amounts if they are going from one place to another place. Customers feel easy from robbing. Such facilities are providing their customer 24hr's they can take their money. In Nepal this facility was started from 1999. In this ATM machine people can take money by inserting card and and they should follow the rules and they can enter their pin number and they can withdraw their needed money easily. In Nepal at one time only Fifty Thousand amounts can draw by one person.Historically, most banks have allowed their own customers to access their accounts with the bank for free while changing non-customers for use of their ATM. This gave banks with a large branch network a competitive advantage as banking with that bank offered the convenience of a greater number of free ATMs around the town. However branches are expensive to build and maintain and banks with few or no branches soon found that by reimbursing the fees charged to their customers when the customers use ATMs belonging to other banks, they could again the same.Competitive advantage at a much lower cost. Further, this cost could be contained by capping the amount of the fee reimbursed per transaction and or the number of transaction per month.According to the banking with USAA Federal savings Bank which from it's beginnings a few decades ago has had customers world-wide but only one office at the USAA headquarters in San Antonio, Texas. Originally, deposits were made via mail or wire transfer and cash with draw as through other bank ATMs with USAA reimbursing the ATMs. Other banks, especially internet banks, have since followed suit and many now offer reimbursement of ATM fees.

MEANING OF CAPITAL MARKET

Capital Market:-The capital market incorporates the financial instruments with more than one year. It deals with the long term financial instruments like corporate equities, government bonds, and debentures. The long and medium-term investment funds are raised through the capital market instruments for meeting the fixed and working capital requirements of the industry or government. Main difference between the money and capital market is the maturity of the credit instruments used in the market. The former relates to the market instruments with less than one year whereas the4 later deals with the instruments used for raising medium and long-term credit from the market. Capital market plays vital role for meeting external finance need of the corporations. The corporations, instead of borrowing from the banks, can directly raise the external funds from the public and, in turn, give them share certificates which they can trade in the capital market and convert into cash. The capital market serves as a bridge to establish a link between savers and investors or surplus or deficit units of the economy. Moreover, capital market provides incentives to the savers in the form of dividends or interest which induce them to save more. In the context of Nepal, the development of modern capital market is relatively a new phenomenon. It is a small and underdeveloped by any standard. The shares of few listed companies are traded in the stock exchange, Nepal Stock Exchange Limited (NEPSE) which was established in 1993.

MEANING OF MONEY MARKET

Money Market:- The financial system is the mechanism funds from surplus to deficit units through the various financial instruments include: treasury bills, corporate equities, debentures, certificate of deposits, government securities etc. The main purpose of these instruments is to collect scattered money and make funds available for investment or for payments. Some instruments are issued and traded for short-term in order to raise funds for the short period of time, usually less than one year. The market where the short term instruments such as treasury bills, certificate of deposits, money at call, inter bank transactions, commercial paper etc. are traded is known as money market. In other words money market refers to the totality of financial institutions which deal with the supply of and demand for short-term funds in the economy. The money market instruments are close substitute for money as they are highly liquid and easily marketable. The money is bought and sold in the money market. The main functions of money market are to provide short-term loans to government and the businessmen to meet their day to day requirements of the working capital, temporary funds to the speculators, and provide better opportunity for the commercial banks to utilize their funds for the short period of time. The money market provides opportunity for the banks and businessmen to utilize their extra funds which can be quickly converted into cash whenever necessary. It also enables banks to make up their unexpected needs for funds that they can obtain cheaply from the money market. London Money Market and Wall Street Money market in the USA are the two largest money markets with daily transactions of hundreds of billions of dollar every day.

IMPORTANCE OF PUBLIC FINANCE

There is great socio-economic significance of public finance, both in developed and developing countries. In developed country countries, price-stability and full employment are the main economic goals of public finance. In developing countries, rapid economic development through capital formulation and creation of infrastructure art the important goals of public finance operations. Socially equitable distributions of income, reduction of inequalities in income are some important functions of public finance operations. The importance of public finance can be clarified from the following functions.

1. TO INCREASE THE RATE OF SAVING AND INVESTMENT
Most of the people spend their income on consumption. Saving is very low so the investment is also low. The government can encourage the saving and investment.

2. TO SECURE EQUAL DISTRIBUTION OF INCOME AND WEALTH
Unequal distribution of income and wealth is the basic problem of the under developed countries. The rich are getting richer and richer while the poor are becoming poorer and poorer. So for the equal distribution of income and wealth there is need of government.

3. OPTIMUM ALLOCATION OF RESOURCES
Fiscal measures like taxation and public expenditure programmers can greatly affect the allocation of resources in various occupation and sectors.

4. CAPITAL FORMULATION AND GROWTH
Fiscal policy will be designed in a manner to perform two functions as of expanding investment in public and private enterprises and by diverting resources from socially less desirable to more desirable investment channels.

5. PROMOTING ECONOMIC DEVELOPMENT
The state can play a prominent role in promoting economic development especially through control and regulation of economic activities. It is fiscal policy which can promote economic development.

6. IMPLEMENTATION OF PLANNING
Under democratic planning fiscal policy plays crucial role as financial plan is as much important as physical plan and the implementation of the financial will obviously depend upon the uses of fiscal measures.

7. INFRASTRUCTURE BUILDING
Public finance helps to build up well-development physical and institutional infrastructure.

8. TO CONTROL INFLATION
The imbalance between demand for and supply of real resources may lead to inflations to under-development countries inflation ruins the entire economic structure of the national and the process of economic development in these countries comes to stand still. So to check inflation, budgetary policies can be used by the government.