10. Money

1. What is money?

Money is anything that is generally accepted in payment for goods and services, and debts and makes the trading process simpler and more efficient.

2. What money are people most familiar with?

At different periods of time and in different parts of the world a variety, of commodities served as money. These commodities were: cattle, sheep, furs, leather, fish, tobacco, tea, salt, etc. Nowadays the money people are most familiar with is currency that people use almost daily.

3. What is currency?

Currency is legal tender. This means the law requires that it must be accepted in settlement of debts. Currency refers to all coins and paper money issued by the central bank of a nation and held by the public within a country.

4. What characteristics does money have?

Although anything can serve as money, modern money should have the following characteristics: stability, portability, durability, uniformity, divisibility, recognizability.

5. What is stability of money?

The value of money should be more or less the same today as tomorrow. In societies where the value of money fluctuates people will store it in the hope its value will increase, or spend it immediately thinking it will be worth less tomorrow.

6. What is portability of money?

Modern money has to be small enough and light enough for people to carry. It especially relates to checkbooks. Check can be written in almost any amount.

7. What is durability?

Money has to have a reasonable life expectancy. So, durability means that modern money is made of a very high quality material that makes it possible to be in circulation over a long period of time.

8. What does uniformity relate to?

Equal denominations of money should have the same value.

9. What is recognizability?

Money should be easily recognized for what it is and hard to copy.

10.How does money function?

Since money is best defined in terms of what it does, the economists describe money in terms of its three basic functions - the needs it fulfills in every society. Medium of exchange, a store of value, a measure of value .

11.What is money as a Medium of exchange?

When moneyis used as a medium of exchange, it distinguishes from other assets. Money enables exchanges to be made easily. In a money economy people can sell what they have to anyone and use the money to buy what they want.

12.How does money perform a function of a Measure of value?

When performing afunction of a measure of value money is used as a common denominator of value for pricing goods and services. The use of money as a measure of value helps make rational market decisions.

13.What does money mean as a Store of value?

Another function of money is a store of value. Money as astore of value enables people to use the value of something that they sell today to make a purchase sometime in the future. The main disadvantages of using money as a store of value are that money bears no interest and in an inflationary period, when prices of goods and services rise, the value of money or its purchasing power actually falls.

14.What does the purchasing power of money mean?

To the economists the value of money orits purchasing power means the amount of goods and services people can buy with their money. When prices increase, money cannot buy as much. Its purchasing power declines.

15.Why and when does the value of money change?

An extended period of rising prices is called inflation. Economists distinguish two general types of inflation – demand-pull inflation and cost-push inflation.

A period in which prices are falling is called deflation. The value of the monetary unit increases during periods of deflation.

11. TAXATION

1.What are the main purposes of collecting taxes?

Taxes are the most important source of revenues for modern governments. Without taxes to finance its activities, governments could not exist. Governments use tax revenues to pay soldiers and police, to build roads and bridges, to control schools and hospitals, to provide food to the poor and medical care to the elderly. Thus the principal purpose of taxes is to pay for the cost of government.

2.What is a tax?

To tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.

3.What types of taxes do governments impose?

Governments impose many types of taxes. In most democracies, individuals pay income taxes when they earn money, consumption taxes such as excise tax,sales taxes, and value-added taxes when they spend it, property taxes when they own a home or land, and some others.

4. What are income and property taxes?

An Income tax is a tax on the income earned by individuals and corporations. A Property tax is a tax based on the value of property owned by the taxpayer

5. What are sales and value-added taxes?

A Sales tax is a regressive tax added to the price of goods and services at the time they are sold.

A Value-added tax is a tax levied on the value added to goods at every stage of production.

6. What excites considerable controversy when it comes to taxation?

Most people would agree that some taxation is necessary, but the question of which taxes and in what amounts can lead to considerable disagreement. In comparing the advantages of one tax over another, it is convenient to focus on the following questions:

 Who ought to pay taxes?

 What types of taxes are being considered?

 Who will actually pay taxes?

7. What are the principles of taxation?

Most economists believe that a tax system should follow дотримуватися two main principles: the ability-to-pay principle and the benefits-received principle.

8. What does the benefits-received principle state ?

The benefits-received principle of taxation states that those who benefit from a government program are the ones who ought to pay for it.

9. What does the ability-to-pay principle state?

The ability-to-pay principle of taxation states that taxes ought to be paid by those who can best afford them, regardless of the benefits they receive. It means that taxes should be based on taxpayers’ ability to pay that is measured by their income or wealth

10. How can most taxes be classified? Define them.

Most taxes can be classified as proportional, progressive, or regressive. A proportional tax takes the same percentage of all incomes regardless of size. A progressive tax takes a larger percentage of a higher income and a smaller percentage of a lower income. A regressive tax takes a lower percentage of income as income rises - poor people pay a larger share of their incomes in taxes than rich people.

11. Why do sales taxes and value-added taxes have a regressive effect?

Both sales taxes and value-added taxes are not based on income, they have a regressive effect because they take a larger share of earnings from a low-income taxpayer than from a high-income taxpayer.

12. What is an incidence of the tax?

The way a tax affects people is called the tax incidence. Incidence refers to the individual or business that will bear the burden of taxes. The incidence of the tax depends on how buyers and sellers of the commodity respond when the tax is imposed.