The role of the state in the economy; Review of Chapter II
Lessons 15–16 · 2 lessons · E. Sariqov, B. Xaydarov. Fundamentals of Economic Knowledge (Economics), Grade 9, 4th edition. “Huquq va Jamiyat” publishing house, Tashkent, 2019
16
Review of Chapter II
Textbook: pp. 72–76
GoalReview the topics of Chapter II (state functions, budget, banking system, fiscal and monetary policy); consolidate leasing, mortgage credit and interest calculations.
New words
leasing · lizingmortgage loan · ipoteka krediticollateral · garovissue of money · pul emissiyasi
Explanation
Chapter II shows what the state does in the economy and where it gets money for it: issues the market cannot solve (monopoly, external effects, public goods) fall to the state; funds are collected into the revenue part of the state budget, mainly from taxes, and spent through the expenditure part. Budget deficits over the years turn into public debt. In the banking system the Central Bank issues money and supervises, while commercial banks take deposits and give credit. When a bank gives a loan it asks the borrower for collateral so that the money comes back: if the equipment bought with the loan is itself the collateral, it is leasing; if a house or building built with the loan is the collateral, it is a mortgage loan. Fiscal policy affects demand and inflation through taxes and spending, monetary policy through the interest rate and reserve ratio. The skill of calculating loan and deposit interest in the simple (I = P · r · t) and compound (P · (1 + r)^n) ways is the main practical part of this chapter.
Worked examples
A farmer took a tractor worth 120 mln so‘m on leasing: the tractor itself is the collateral. With an annual rate of 15% and a term of 2 years (simple interest), interest = 120 000 000 · 0.15 · 2 = 36 000 000 so‘m and total payment is 156 000 000 so‘m. If the debt is not paid, the bank takes the tractor back.
At the start of the world financial and economic crisis that began in the USA in 2007–2008, many mortgage loans were not repaid and banks lost their ability to pay. This example shows how important collateral and confidence in repayment are.
Class activity
“Chain of terms”. The class stands in a circle: the first student says a term from Chapter II (for example “budget”), the next defines it and says another term (for example “deficit”). The chain goes on until it breaks; if a definition is wrong, the class corrects it.
Practice
1
Budget revenue is 640 bln and expenditure 700 bln so‘m. What is the deficit in bln so‘m?
60
2
A firm took a 200 mln so‘m loan for 1 year at 18% annual simple interest. How many so‘m in total does it return to the bank?
236000000
3
State the difference between leasing and a mortgage loan.
In leasing the collateral is the equipment bought with the loan; in a mortgage it is the house or building built or bought with the loan.
4
Why can the state revive the economy by cutting the tax rate, and what risk does this pose to the budget?
People and firms have more money, demand and output grow; but the state’s revenue falls and the deficit may grow.