(a) Public finance is the study of how governments manage revenue generation (e.g., through taxes and borrowing), expenditure allocation, and debt to achieve economic objectives like growth, stability, and equity. In Ghana, it encompasses the national budget, overseen by the Ministry of Finance and BoG, including post-DDEP debt management under principles of fiscal responsibility.

(b) Governments allocate funds in the following four areas to meet spending obligations and fulfill functions:

1. Infrastructure Development: Funds are directed to build roads, ports, and energy projects to boost economic productivity. In Ghana, allocations under the Ghana Infrastructure Investment Fund (GIIF) support initiatives like the Accra-Tema Motorway expansion, enhancing trade and bank lending opportunities.
2. Social Services: Expenditure on education, healthcare, and social welfare programs to improve human capital and reduce inequality. For example, Ghana’s Free Senior High School policy and National Health Insurance Scheme (NHIS) are funded through budgets, stabilizing society and indirectly supporting banks via healthier, educated borrowers.
3. Defense and Security: Allocations for military, police, and cybersecurity to maintain national security. In Ghana, this includes funding for the Ghana Armed Forces and anti-terrorism measures, ensuring a stable environment for financial operations amid regional threats.
4. Debt Servicing and Administration: Funds for repaying domestic and external debts, plus administrative costs like salaries for public servants. Post-2022 DDEP in Ghana, significant allocations go to interest payments on restructured bonds, managed under the Public Debt Management Office to prevent default and maintain credit ratings.

(c) Fiscal policy involves government adjustments to taxation and spending to influence the economy, such as increasing taxes to reduce deficits or boosting expenditure for stimulus, directly affecting aggregate demand in Ghana via annual budgets.

Monetary policy, managed by the central bank (BoG), focuses on controlling money supply and interest rates (e.g., via policy rate changes or open market operations) to achieve inflation targets and financial stability, indirectly influencing the economy through credit availability, differing from fiscal policy’s direct budgetary tools.

(d) Taxation plays a key role in controlling inflation by reducing disposable income and aggregate demand. Higher taxes (e.g., increasing VAT from 12.5% to 15% in Ghana) withdraw money from circulation, curbing spending on goods and services, which helps lower demand-pull inflation. It also funds government spending without printing money, avoiding monetary expansion, as per BoG’s coordination with fiscal authorities under inflation-targeting since 2002.