The government of a nation performs its income distribution function ...
Through its tax and expenditure policy, the government attempts to bring about a distribution of income that is considered fair’ by society. The government affects the personal disposable incomeof households by making transfer payments and collecting taxes and, therefore, can alter the income distribution. This is the distribution function. - Transfer Payment is a payment made or income received in which no goods or services are being paid for, such as a benefit payment or subsidy. Unlike the exchange transaction which mutually benefits all the parties involved in it, the transfer payment consists of a donor and a recipient, with the donor giving up something of value without receiving anything in return.
- In any period, the level of expenditures may not be sufficient for full utilisation of labour and other resources of the economy. Since wages and prices are generally rigid downwards (they do not fall below a level), employment cannot be restored automatically. Hence, policy measures are needed to raise aggregate demand. On the other hand, there may be times when expenditures exceed the available output under conditions of high employment and thus may cause inflation. In such situations, restrictive conditions are needed to reduce demand. These constitute the tabilization requirements of the domestic economy.
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The government of a nation performs its income distribution function ...
The government of a nation performs its income distribution function through two mechanisms, namely levying taxes and transfer payments. The third option, controlling the money supply, is not directly related to income distribution.
Levying Taxes: The government collects taxes from individuals and businesses in the form of income tax, sales tax, corporate tax, etc. These taxes are used to fund various welfare programs such as healthcare, education, and social security. The government uses the revenue generated from taxes to provide benefits to the poor and vulnerable sections of society, thereby reducing income inequality.
Transfer Payments: Transfer payments are direct payments made by the government to individuals or households. These payments are made to support people who are unable to earn a sufficient income, such as the elderly, disabled, and unemployed. Transfer payments include programs such as social security, unemployment benefits, and welfare programs.
Controlling Money Supply: While controlling money supply is an important function of the government, it is not directly related to income distribution. The government controls money supply through monetary policy, which involves adjusting interest rates and the money supply to influence economic growth and inflation.
In conclusion, the correct answer is option A, which states that the government performs its income distribution function through levying taxes and transfer payments.
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