Which situation best represents the distribution function of public finance?
Correct answer: B. Using taxes and transfers to reduce income inequality
- A. Building a national highway to reduce transport costs
- B. Using taxes and transfers to reduce income inequality
- C. Maintaining currency reserves for external payments
- D. Paying interest on previously issued government bonds
Explanation
The distribution function concerns the way income and wealth are shared among members of society. Progressive taxes and targeted transfers are common instruments for reducing inequality, whereas highway construction mainly supports allocation and development.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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