Course title: Government Finance and Financial System

Course no.: Eco. Ed. 433 Full marks: 100

Nature of course: Theoretical Pass mark: 35
Level : B. Ed. Periods per week: 6
Year: Third Time per period: 55 minutes
Total periods: 150

1. Course Description
The contour and contents of the course include: the concept and role of government
finance, local finance and federal finance, sources of government revenue and
government expenditure and their role, sources, classification and objectives of
government debt and its impacts, budget formulation process and budgetary policy in
economic development, concepts of money and quantity theory of money, inflation
and the business cycle, classification and theories of exchange rate and exchange
control, development of banking system and functions of central bank and credit
creation processes of commercial bank, money market and capital market and the
role and objectives of IMF, ADB, World Bank, theories of international trade,
components and causes of disequilibrium of balance of payments and the methods of
adjustment, trade problems of developing countries with reference to WTO, SAFTA
and IDS.

2. General Objectives
The general objectives of this course are as follows
 To introduce the concept and role of government finance.
 To familiarize the students with different sources of government revenue.
 To provide a broader understanding on classification and role of government
expenditure.
 To impart the knowledge on sources, classification and objectives of government
debt and its impacts.
 To acquaint the students with budget formulation process and budgetary policy in
economic development.
 To introduce the concepts of money and explain quantity theory of money,
inflation and the business cycle.       
 To make the students familiar with the classification and theories of exchange rate
and analysis of exchange control.
 To provide the students with a deeper understanding of  the development of
banking system and functions of central bank and credit creation processes of
commercial bank

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3. Specific Objectives and Contents
Part I: Government Finance
Specific Objectives Contents
Unit I: Introduction of Government
 Introduce the evolution of Finance (10)
government finance. 1.1 Evolution of government finance:
 Introduce the concept and nature classical, neo- classical and modern
of government finance. government finance.
 Differentiate between private and 1.2 Concept and nature of government
finance
government Finance.
1.3 Difference between government finance
 Examine the role of government and private finance
finance in underdeveloped 1.4 Role of government finance in
countries underdeveloped countries.

Unit II : Local Government Finance

 Acquaint to the local government (15)
and local finance 2.1 Concept of local government and local
 Identify the sources of local finance.
finance 2.2 Sources of local finance.
2.3 Concept and principle of local taxes.
 Explain the principle of local 2.4 Fiscal decentralization.
taxes 2.4.1 Concept of fiscal decentralization.
 Acquaint the fiscal 2.4.2 Rational of fiscal decentralization
decentralization 2.5 Federal finance.
 Give the rational of fiscal 2.5.1 Concept of federalism and federal
decentralization finance.
 Introduce the federalism set up 2.5.2 Justification of federal set up.
2.5.3 Principle of federal finance.
 Discuss the federal finance
2.5.4 Problems of federal finance.
 Present overview of public
finance in the case of Federal
system.
 Justify the federalism set up
 Explain the principle and
problems of federal finance

Unit III: Government Revenue

 Define government revenue (15)
 Examine the source of government 3.1 Meaning and sources of government
revenue. revenue
 Distinguish between impact, 3.2 Principle of taxation: Benefit and
shifting and incidence of taxation. ability to pay principle of taxation.
 Explain the different principles of 3.3 Impact, shifting and incidence of
taxation taxation
 Explain the different theories of 3.4 Theory of incidence of taxation
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 incidence of taxation. 3.4.1 Concentration theory of incidence
 Introduce the elasticity and of taxation
buoyancy of taxation. 3.4.2 Diffusion theory of incidence of
 Examine the effects of taxation on taxation
production, consumption, 3.4.3 Modern theory of incidence of
distribution, investment and taxation
saving 3.5 Concept of elasticity and buoyancy of
 Explain the role of taxation in taxation.
underdeveloped countries. 3.6 Effects of taxation on consumption
. production, distribution, saving, and
investment.
3.7 Role of direct and indirect taxes in
underdeveloped countries.
Unit IV: Government Expenditure
 Classify government expenditure (15)
 Explain the reasons to growth of 4.1 Concept and classification of government
government expenditure expenditure
 Explain the Maximum Social 4.2 Reasons to growth of government
Advantage Theory of government expenditure in underdeveloped
expenditure. countries.
 Introduce the different cannons of 4.3 Cannon of government expenditure.
government expenditure. 4.4 Maximum social advantage theory of
 Examine the effects of government expenditure.
government expenditure on 4.5 Effects of government expenditure on
production, consumption, production, consumption,
distribution, employment, distribution, employment, exchange and
exchange and economic growth. economic growth
.
Unit V: Government Debt (10)
5.1 Meaning, sources, classification and
Identify the sources, and objectives objectives of government debt.
of government debt. 5.2 Burden of government debt.
Identify the sources, and objectives 5.3 Management of government debt in
of government debt. underdeveloped countries with special
Classify the government debt. reference to Nepal.
 Examine the impact of 5.4 Methods of debt redemption.
Government Debt. 5.5 Concept of debt trap.
 Explain the Management of
Government Debt in developing
countries.

Unit VI: Government Budget (12)

 Define government budget 6.1 Meaning and classification of budget.
 Classify government budget 6.2 Concept of program, performance and

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 Introduce the program, zero base budgeting.
performance and zero base 6.3 Role of government budgeting in
budgeting. economic development of
 Describe role of government underdeveloped countries.
budgeting in economic 6.4 Process of budget formulation with
development of underdeveloped special reference to Nepal
countries.
 Explain budget formulation
process.

Unit VII :Deficit Finance and Foreign Aid

 Define deficit finance in Underdeveloped Countries
 Acquaint with classification and (15)
method of deficit finance 7.1 Deficit finance
 List out the objectives of deficit 7.1.1 Concept, classification and method of
finance deficit finance.
 Explain the role and needs of 7.1.2 Objectives of deficit finance.
deficit finance in economic 7.1.3 Needs and role of deficit finance in
development of underdeveloped economic development of
countries underdeveloped countries.
 Examine the economic effect of 7.1.4 Economic effect of deficit finance.
deficit finance 7.1.5 Safe limit of deficit finance.
 Show the safe limit of deficit 7.2 Foreign aid.
finance 7. 2.1 Concept and role of foreign aid in
underdeveloped countries.
 Introduce the concept of foreign
7.2.2 Trend of foreign aid.
aid
7.2.3 Types of foreign aid.
 Explain the positive and negative
7.2.4 Foreign aid in Nepal.
role of foreign aid in economic
development of underdeveloped
countries
 Show the trend of foreign aid
 Classify the foreign aid
 Show the condition of foreign
aid in Nepal

Part II: Financial System

Unit VIII: Money (21)
8.1 Definition of money
Define money. 8.2 Functions of money
Clarify the concept of M1, M2 and 8.3 Concept of money (m1, m2 and m3) and
M3 its role.
Explain quantity theory of money. 8.4 Quantity theory of money (Transition Vs
Define meaning and kinds of income approach)
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 inflation. 8.5 Inflation
Define inflationary gap. 8.5.1 Meaning
Distinguish between demand pull 8.5.2 Kinds
and cost push inflation. 8.5.3 Concept of inflationary gap
Explain different phases of 8.5.4 Demand pull and cost push
business cycle. inflation
8.6 Business cycle
8.6.1 Concept
8.6.2 Phases

 Distinguish between fixed and Unit IX: Exchange Rate (15)

floating exchange rate. 9.1 Meaning, concept of fixed and floating
 Explain different theories of exchange rate
exchange rate determination. 9.2 Determination of exchange rate,
 Analyze objectives of exchange 9.2.1 Purchasing  power parity
control. theory
Evaluate methods of exchange 9.2.2 Mint par parity theory
control. 9.2.3 Balance of payment theory
9.3 Exchange control
9.3.1 Meaning, Objectives and
methods of exchange control
9.3.2 Justification and limitations of
devaluation
 Trace out the development of Unit X: Banking (10)
banking system. 10.1 Development of banking
 Distinguish between branch 10.1.2 System- branch banking
banking and unit banking. 10.1.3 Unit banking system
 Analyze principles and function 10.2 Commercial bank
of central bank. 10.2.1 Principle of commercial banking
 Explain the principles of 10.2.2 Methods of credit creation and its
commercial banking and credit limitations
creation process. 10.3 Central bank
10.3.1 Principle
10.3.2 Functions of central bank
10.3.3 Methods of credit control and its
limitations
 Distinguish between money Unit XI: Financial Institution (12)
market and Capital market. 11.1 Financial market
 Analyze different non-bank 11.1.1 Concept of money market and
financial institutions. capital market
 Explain role and objectives of 11.1.2 Instruments of financial market
IMF, ADB, World Bank. 11.2 Concept of non-bank financial
institutions
11.2.1 Provident fund
11.2.2 Insurance company
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 11.2.3 Financial companies
11.2.4 Co-operative
11.2.5 Finance company
11.2.6 Development bank
11.3 Role and objectives of IMF, ADB
and World Bank.
Note: The figures within the parentheses indicate the approximate periods for respective units.

 Instructional Techniques
The instructional techniques for this course are divided into two groups. They are
general and specific instructional techniques.

 General Instructional Techniques

The teacher can apply the following general instructional technique as and when
required as per the nature of the units
Lecture with illustration
Discussion
Demonstration
Inquiry and question answer

 Specific Instructional Techniques

Unit I: Guest Lecture
Unit II –VI : Project work
Unit VII and VIII : Guest Lecture
Unit IX & XI: Report writing and class room presentation by students

 Evaluation
Office of the Controller of Examinations, Tribhuvan University will conduct the
annual examination at the end of the academic year to evaluate student’s
performance. The types, number and marks of the subjective and objective questions
will be as follows.

Types of Total questions to Number of questions to be Total marks

questions be asked answered and marks allotted
Group A : 20 questions 20 × 1 mark 20
Multiple choice
items
Group B : Short 8 with 3 alternative 8 × 7 mark 56
questions questions
Group C : Long 2 with 1 alternative 2 × 12 mark 24
questions question

Recommended books and References

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 Recommended books
Gupta, S.B. (2007). Monetary economics: Institutions, theory and policy. New Delhi : S. Chand
and Company. (For units VI, X, and XI)
Lekhi, R.K. (2008). Public finance. New Delhi: Kalyani Publishers. (For units I and II)

Musgrave, R. A. & Musgrave, P.B. (2007). Public finance in theory and practice. New Delhi:
Tata McGraw Hill (For units III, IV & V)
Vaish, M.C. (2008). Monetary theory. New Delhi: Vikash Publishing House. (For units VII, VII
& IX)

References

Ghosh, A. & Ghosh, C. (2008). Economics of the public sector. New Delhi: Prentice-Hall of
India.
Kurihara, K.K. (2003). Monetary theory and public policy. New Delhi: Kalyani Publishers.
Prest, A.R. (1985). Public finance. London: Weidenfeld and Nicolson.
Samuleson, P.A. & Nordhaus, W. D. (2005). Economics (seventh edition) New Delhi: Tata
McGraw Hill.
Singh, S.K. (2005). Public finance in developed and developing countries. New Delhi: S. Chand
and Company.
Dahal, M. R. and Khanal, B. (2069). Public finance, financial system and international trade.
Kathmandu: M.K. Publisher and Distributer.
Sharma, N.K. (2005). Public finance, financial system and international trade. Kathmandu:
Pairabi Prakashan.

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