6. Answer the questions

1. What countries are called poor?

2. For whom and what does economy produce?

3. What is the role of governments in distributing incomes?

7. Translate into English using all the active possible

1. Національний доход - це загальна сума, отримана населенням у вигляді заробітної плати, ренти, відсотка і прибутку протягом визначеного періоду, зазвичай протягом одного року.

2. Джерела нерівності — це причини, що викликають нерівність у розподілі доходу. Оскільки існують два основних джерела доходів — трудові доходи і доходи від власності, джерела нерівності розділяють на 2 групи: джерела, що викликають нерівність у трудових доходах; і джерела, що викликають нерівність у доходах від власності. У розвинутих країнах джерелами нерівності в трудових доходах є, в основному, освіта і професія. Доходи від власності ще більш диференційовані, ніж доходи від трудової діяльності, оскільки обумовлені нерівністю в розподілі багатства. Основними джерелами нерівності в доходах від власності є підприємницька діяльність і спадщина.

Unit 5 the role of government

Having mentioned the effect of government tax policy on the income distribution, it's necessary to examine in greater detail the role of the government in society. In every society governments provide such services as national defence, police, public education, firefighting services, and the administration of justice. In addition, governments through budget make transfer payments to some members of society.

Transfer payments are payments made to individuals without requiring the provision of any service in return. Examples are social security, retirement pensions, unemployment benefits, and, in some countries, food stamps. Government expenditure, whether on the provision of goods and services (defence, police) or on transfer payments, is chiefly financed by imposing taxes, although some (small) residual component may be financed by government borrowing. Tabl. 2 compares the role of the government in four countries.

Tabl. 2. Government Spending as a Percentage of National Income

Country	Purchase of goods and services	Transfer payments	Debt interest	Total
UK	% 23,0	% 17,2	% 5,1	% 45,3
Japan USA Italy	14,9 20,1 27,0	12,7 12,2 23,0	4,6 4,8 9,2	32,2 37,1 59,4

In each case, we look at four measures of government spending as a percentage of national income: spending on the direct provision of goods and services for the public, transfer payments, interest on the national debt, and total spending.

Italy is a 'big-government" country. Its government spending is large and it needs to raise correspondingly large tax revenues. In contrast, Japan has a much smaller government sector and needs to raise correspondingly less tax revenue. These differences in the scale of government activity relative to national income reflect differences in the way different countries allocate their resources among competing uses.

Governments spend part of their revenue on particular goods and services such as tanks, schools and public safety. They directly affect what is produced. Japan's low share of government spending on goods and services in Tabl. 2 reflects the very low level of Japanese spending on defence.

Governments affect for whom output is produced through their tax and transfer payments. By taxing the rich and making transfers to the poor, the government ensures that the poor are allocated more of what is produced than would otherwise be the case; and the rich get correspondingly less.

The government also affects how goods are produced, for example through the regulations it imposes. Managers of factories and mines must obey safety requirements even where these are costly to implement, firms are prevented from freely polluting the atmosphere and rivers, offices and factories are banned in attractive residential parts of the city.

The scale of government activities in the modern economy is highly controversial. In the UK the government takes nearly 40 per cent of national income in taxes. Some governments take a larger share, others a smaller share. Different shares will certainly affect the questions what, how and for whom, but some people believe that a large government sector makes the economy inefficient, reducing the number of goods that can be produced and eventually allocated to consumers.

It's commonly asserted that high tax rates reduce the incentive to work. If half of all we earn goes to the government, we might prefer to work fewer hours a week and spend more time in the garden or watching TV. That is one possibility, but there is another one: if workers have in mind a target after-tax income, e.g. to have at least sufficient to afford a foreign holiday every year, they will have to work more hours to meet this target when taxes are higher.

Whether on balance high taxes make people work more or less remains an open question. Welfare payments and unemployment benefit are more likely to reduce incentives to work since they actually contribute to target income. If large-scale government activity leads to important disincentive effects, government activity will affect not only what, how, and for whom goods are produced, but also how much is produced by the economy as a whole.

This discussion of the role of the government is central to the process by which society allocates its scarce resources. It also raises a question. Is it inevitable that the government plays a prominent part in the process by which society decides how to allocate resources between competing demands? This question lies at the heart of economics.