COMMODITY PRODUCTION.

FINANCE AND CREDIT SYSTEM.

FINANCING OF THE SYSTEM OF PUBLIC HEALTH SERVICES IN UKRAINE.

Commodity Organization of Production. Money and Inflation.

Plan

1. Forms of social production. Natural and commodity production.

2. Commodity and its properties. Value. Law of value.

3. Money and its function. Money origin. Money types.

4. Money amount and money circulation. Law of money circulation.

5. Inflation and its reasons. Mechanism of inflation.

1. Forms of social production. Natural and commodity production

It is necessary to remind, that production is creation of means and facilities necessary for satisfaction of various human necessities and realization and development of their capabilities. So, production has social character.

The world division of labor, which depends on the level of development of productive forces and character of production relations, is the basic form of social production. The structure of world division of labor is shown in Addendum 1.

Social production is in permanent motion, and, in spite of separate periods of decline, it still stays in permanent development and perfection. Great stages of evolution of social production are called technological methods of production. They are pre-industrial, industrial and postindustrial.

Social production can be shown from two viewpoints: macro- and microlevels. Macrolevel is social production in the whole, and microlevel is the level of separate enterprises.

Two basic forms of social production are: natural and commodity production.

Natural production is characterized by traditional and limited production and consumption, invariability of proportions and structure of production, conservative machines. Natural production prevails in period of insufficient development of productive forces, social division of labor, commodity-money relations. Such managing was peculiar for primitive-communal, slave-owning and feudal relations. Peculiar for natural production is that all production processes lock oneself up at the level of separate economic unit. This was the basis of long-term conservatism, firmness and stability of agricultural communities. Such feature generated terrible forms of exploitation of labor force, lawlessness of workers. A man was absolutely dependent upon a proprietor and on this basis all relations between workers and proprietors were based. Nowadays, in the developed countries, where separate cases of natural-economic relations still can be met, we can observe that exploitation and absolute dependence of workers growth, and complete fully absence of their influence on production is felt.

With the development of productive forces commodity production ousts natural production. But today in under-development countries natural production takes considerable part in social production.

Exchange is obligatory chain between sphere of production and sphere of consumption for the commodity economy. Commodity production is such type of managing of the economically separated commodity producers that specialize on making definite products; so, exchange of the labor products is necessary for satisfaction of public needs. So, two conditions are necessary for appearance of such form of managing: social division of labor; economically separated commodity producers, which are stipulated for a private property of means of production.

Two types of commodity production are distinguished: simple and capitalistic. Simple commodity production is organized by small independent commodity producers. Extended or capitalistic production is characterized by hired labor; however these two types of commodity production are common familiar, because they have identical economic basis, i.e. private property on means of production.

There are some differences between simple commodity and capitalist production.

Description of commodity production and capitalistic production

Production	Simple	Capitalist
Proprietor and producer	One person	Different persons
Proprietor of product of labor	Producer	Different persons
Labor	Mainly own	Hired
Purpose of production	Satisfaction of own necessities	Product and income

Private property on means of production is one of the most influential factors. But in capitalistic production this feature has the negative coloring through great temptation of hired workers exploitation that takes place at any scales of production.

2. Commodity and its properties. Essence of value. Law of value

Developed commodity production is basis for modern market economy. In the conditions of commodity production, when exchange takes place, the product, result of human labor, takes shape of commodity.

Characteristic feature of commodity, unlike a product, is that it is produced not for own consumption, but is intended for consumption by others, and necessarily will be found in the process of buying and selling.

In the system of health care the product of medical workers labor is medical care. This product will become a commodity when it is intended for exchange. Here are a number of warnings, which are necessary in the system of medical care, in order not to convert medical care for the patient in the object of money making with all consequences. The rational mechanism of payment, which would guarantee the receipt of such help by patients and will not turn doctors and other medical personnel by beggars, is necessary. Unfortunately, today in Ukraine we cannot work out such mechanism, and as practice proves, there isn’t such perfect mechanism in the world.

It has two characteristics – consumer value and value or exchange value. Consumer value is ability of commodity to satisfy some necessity. This value is social, because it is created for social and not for own consumption.

Value is the expenditures of abstract socially necessary labor embodied in a commodity. The size of value is determined by a average quantity of socially necessary working hours spent for its creation. Value is internal property of commodity, which expresses its essence. Form of this essence is an exchange value, i.e. property of commodity to be exchange for other commodity in definite proportion.

The theory of labor value characterizes value as expenditures of socially necessary labor. But this theory does not take into account the external influence of demand factors, which form the final price.

The theory of “three factors” by French economist G.B.Sey gain great popularity. It characterizes a value from three viewpoints: labor, capital and land. Each of these constituents creates the part of value in the form of wages, income and rent.

An exchange value is connected to such index as quality. Quality mainly provides ability of commodity to satisfy human needs and ability to be exchanged for other commodity.

Quality is correspondence to some characteristics, which provide usefulness of given product or commodity.

The highest criterion of quality is its correspondence to definite standards. Reliability, guarantee, longevity, safety, technical resources are basic characteristics of quality.

Quality takes special part in the system of public health. Quality of medical service consists in such application of medical achievements and technologies, which fully take their advantages for the human health. There are many definitions of medical care. One of the shortest is: "Do all necessity correctly and honestly".

The Institute of medicine of the USA considers that quality of medical service is a degree where medical services promote probability of the desired results of medical treatment and correspond to the existing level of professional knowledge.

World Public Health Organization defines quality of medical care as exact fulfillments of different types of medical treatment, which are safe financially available for the given society and are able to have positive influence on the level of death rate, morbidity and disablement.

Quality of medical services is more complicated category than quality of commodity. It includes three aspects:

1. Quality from the patient point of view, i.e. what is exactly expected by a patient from the given service. Patient himself estimates this quality.

2. Professional quality, i.e. whether services satisfy all consumers’ needs. Estimation is given by a practicing doctor or administration of hospital.

3. Quality of management foresees the most effective and productive use of the limited resources. Estimation is given by administration, owners of the given hospital, and public organizations, which manage given medical establishment.

The ideal system of quality providing must correspond to the basic principles:

Ø Providing of quality must satisfy needs and desires of patient and society;

Ø Providing of quality must be directed to definite systems and processes;

Ø Providing of quality must stimulate collective approach to solution of problems and to increasing of medical care quality.

Hence, quality in public health system is the most important feature of such commodity as a medical service.

In Ukraine the quality of medical care is regulated by Law of Ukraine №2017-III (05.10.2000) “About state social standards and state social guarantees” and Order of Ministry of public health of Ukraine № 507 (28.12.2002) “About affirmation of norms of medical care and indexes of medical care quality”. There are such indexes of medical care quality:

1. Availability of medical care.

2. Economy of medical care.

3. Efficiency of medical care.

4. Scientific and technical level of medical care.

5. Continuity of medical care.

6. Level of hospitalization quality.

7. Level of diagnostics quality.

8. Level of quality of medical treatment.

9. Level of examination quality.

10. Level of prophylaxis quality.

11. Level of rehabilitation quality.

12. Degree of patients’ satisfaction from received medical care.

Two properties of commodity are conditioned by ambivalent character of labor, which creates a commodity, namely concrete and abstract labor. Concrete labor is spent in a definite form, i.e. the professionally shaped labor. It creates as consumer value. Such labor is part of social division of labor (specialization). Any concrete labor differs from other types of labor by definite facilities, technology, skills and knowledge of workers.

Abstract labor is embodiment of labor common to all mankind, that it is the expenditure of labor force. In this meaning labor of both miner and farmer is identical. It performs an important economic function, i.e. it creates the value of commodities that lies in the basis of exchange of various consumer costs (definite quantity of coal can be exchanged for the definite quantity of corn). Money is the most perfect mean of expression of exchange value in the conditions of commodity production.

A general economic law is law of value, conditions necessary, substantial and constant relations between socially necessary labor and costs of commodities in the conditions of demand and supply.

The law of value has definite features that lie in the presence of substantial and constant connection. First, there are connections between individual and socially necessary working time, therefore exchange supplies are regulated socially by necessary charges; and therefore commodity is sold for average public charges. It is powerful stimulus of labor productivity growth.

The second feature is that commodities are sold as equivalent to publicly necessary labor.

The third feature is the existence of permanent relations between the producers of one type of commodities as competition between them. Such competition appears to be the stimulus of production.

The fourth feature is characterized by constant relations between demand and supply. If exchange takes place concertedly with the expenditures of public labor, the most desirable state comes at the market, i.e. market equilibrium. If equilibrium between demand and supply is violated, commodities are forced to be for sold for the higher or lower prices.

A fifth feature shows fluidity and relativity of time. Commodities are sold for prices that are conditioned not by time spent for their production but for the time necessary for their reproduction.

The sixth feature characterizes connection between value and value of commodity. The law of value regulates prices for commodities depending on diminishing or increasing of socially spent time for their production. However there are situations, when prices do not depend on the time spent for production, but are regulated only by demand and supply relations. This takes place during auctions, exchange auctions, at trade of works of art etc. At the state regulation of prices the law of value operates conditionally. When capitalization of profits (securities, land and others) lies in the basis of price, its level is determined by a profit, which brings the object of buying and selling. Thus, the law of value is the basic law of market relations. It stimulates producers to lower the charges of own production, to increase labor productivity and aspire to the lowest prime price of commodity that protects them from bankruptcy.

3. Essence and function of money. Origin of money. Types of money

If you find yourself stuck in a barter situation, what can you do? One solution — common to all societies — is to pick one of the available goods as a medium of exchange, that is, as money. All other goods are measured in units of the one selected. Suppose the choice is eggs. By common consent, eggs are the accepted currency. A rabbit exchanges for 14 eggs, a peahen exchanges for 10, a basket of berries for 2, and a banana exchanges 1 for 1.

This wouldn't last very long. People will quickly discover that eggs are a poor money form. They are too fragile. If the hunter sells 3 rabbits and receives in exchange 42 eggs, most likely many would break before the day is out. There goes the money! How would you feel walking about with 42 eggs in your pocket?

Money must be durable and portable. Eggs are out on both counts. What about fish? They are too perishable. You wouldn't want to keep that money form in your pocket for very long, would you?

Rabbits? They are more durable than eggs or fish, but how would you buy an egg with a unit of rabbit? How could you measure out one-fourteenth of a rabbit? And what would you do with the remaining thirteen-fourteenths? You see the problem: money must be divisible as well.

Another problem with rabbits as a money form is that some rabbits are big and fluffy others are not. Some are cute, others less so. As long as some are preferred to others, people will tend to hoard preferred rabbits and use only the less preferred ones as money. In such cases, then, not all of the money form actually serves as money. To overcome this problem, the units of any money form selected must be identical, or homogeneous.

There's still another problem with rabbits. They breed like rabbits! If rabbits are money, it becomes impossible to control the money supply. The supply of fish and eggs, too, can be expanded without much effort. If money is to serve as a reliable store of value, its supply, at least in the short run, must be fairly stable.

As you can see, almost any choice on the island creates a problem. But we all do the best we can. Some Native Americans, before Europeans arrived, used wampum, strings of beads made of shells, as money. During the colonial period, fish, furs, corn, cattle, whiskey, and, at various times, even gunpowder was used as money.

Elsewhere, other goods served as the medium of exchange. In the South Pacific, the tiny island of Yap came to use large stone wheels, one of them 12 feet in diameter, as its money form. In Homer's day, cattle were used as money. The ancient Egyptians used necklaces, hatchets, and daggers. U.S. prisoners of war during World War II used cigarettes. In fact, most common goods, including beans, fishhooks, pearls, cocoa seeds, nails, rum, tea, pepper, sheep, pigs, dates, salt, rice, sugar, skins, silk, reindeer, and whale teeth have served somewhere at some time as money.

Gold as Money

Economies tend to select whatever goods they have that come closest to satisfying the prerequisites for perfect money. What money form would you choose if you were on the island? Think about it. If homogeneity, divisibility, portability, durability, and unchanging supply count, what about that gold buried among the truffles? Before exchange, it was useless. Now it appears to satisfy all five prerequisites:

• Its supply — the 1,000 coins — is fixed. In the real world, supplies of gold are hard to come by. People have searched the globe for gold, but whatever the discovery, even the San Francisco Gold Rush of 1849, year-to-year additions to total stock have been less than dramatic. Gold is just hard to find.

• It's perfectly homogeneous. Gold is gold. One ounce is identical to any other. No ounce is preferred to another.

• It's incredibly durable. Just try destroying a nugget of gold. It doesn't rot, rust, fade, overripe, or dry up. Its luster withstands the elements of time.

• It's perfectly divisible. Gold can be melted down and remolded into any shape or size. Think of gold jewelry. Gold nuggets can be reduced to standard-sized ounces, and ounces cut to minute fractions. Gold dust is still gold.

• It's portable. It can be held, pocketed, or carried about. There's a limit, of course, to the quantity a person could carry, but for most people, the quantities required are quite manageable.

So, what is money?

To formulate precise and full definition of "money" — practically impracticable task. It is connected to a diversity of functions and forms of money, which constantly extends. Let's result some of definitions.

Money is all that is accepted in exchange on the goods and services.

Money is that they execute.

Money is a product of the convention between the people.

The most common and acceptable definition of money, as the economic category can formulate as follows:

Money is what money does. Anything that performs the functions of money is money. There are three functions of money:

1. First and foremost, money is a medium of exchange; that is, money is usable in buying and selling goods and services. As a medium of exchange, money allows society to escape the complications of barter and thereby to reap the benefits of geographic and human specialization.

2. Money is also a standard of value. Society finds it convenient to use the monetary unit as a yardstick for measuring the relative worth of heterogeneous goods and resources. This has obvious advantages. With a money system, we need not state the price of each product in terms of all other products for which it might possibly be exchanged; that is, we need not state the price of cows in terms of corn, cream, cigars, Chevrolets, cravats, or some other product. This use of money as a common denominator means that the price of each product need be stated only in terms of the monetary unit. The necessity of using money as a standard of value is in measuring the GNP. Money is also used as a standard of value for transactions involving future payments. Debt obligations of all kinds are measured in terms of money.

3. Finally, money serves as a store of value. Because money is the most liquid of all assets, it is a very convenient form in which to store wealth. Though it does not yield monetary returns such as one gets by storing wealth in the form of real assets (property) or paper assets (stocks, bonds, and so forth), money does have the advantage of being immediately usable by a firm or a household in meeting any and all financial obligations.

Money used today is called “fiat money”, because they have no intrinsic value other than wide acceptance as being such. An alternative to fiat money is commodity money, such as gold. Countries that defined their currencies in terms of fixed amount of gold were said to be on the gold standard. Although paper notes were used together with gold coin under the gold standard, the government or the central bank was obliged to redeem these notes for a fixed amount of gold in unlimited amounts to both citizens of its country and foreigners. In the second half of the nineteenth century a number of countries in Europe and in the New World announced convertibility of their currencies to gold and so were linked together via a system of fixed exchange rates. This arrangement, which ceased to exist in its classic form with beginning of the World War I, was called the Classical Gold Standard.

The Velocity of Money

From the three core functions of money, namely as a store of value, unit of account of medium of exchange, a relationship between the stock of money and other economic variables may be conjectured. We would expect a relationship between the number of transactions in the economy and the stock of money.

Actually, it's too simple. The price level depends not only on Q (real GDP) and M (the quantity of money), but also on velocity — that is, on the number of times a dollar is used during a year transacting Q.

Adding the velocity of money completes the equation of exchange (by I. Fisher):

MV = PQ

The quantity of money times its velocity equals the quantity of goods and services produced times their prices.

Consider once more the apple economy. If Q = 5,000 apples, M = $10,000, and V = 8, the price level P skyrockets to $16. The velocity of money, as you see, can be important.

4. Amount of money and money circulation. Law of money circulation

There is a question: What amount of money is necessary for a state? This question is considered in two aspects. In short, amount of money is totality or combination of cash and non-cash deposits in banks. It is called an aggregate (M- money).

Let us now consider the supply of money. Historically, such diverse items as whales’ teeth, elephant tail bristles, circular stones, nails, slaves, cattle, beer, cigarettes, and pieces of metal have functioned as media of exchange. Currently, in our economy the debts of governments and of banks are employed as money.

Money Defined: M₁

Economists are not in agreement as to what specific items constitute the economy's money supply. Narrowly defined—and designated as M_l — the money supply is composed of three items: (1) coins, (2) paper money, and (3) demand deposits, or checking accounts. The first two items are debts of government and governmental agencies; the third represents a debt of commercial banks.

Coins. Ranging from copper pennies to silver dollars, coins constitute the "small change" of our money supply. Coins are a very small portion of our total money supply. Currently, about $9 or $10 billion worth of coins are in circulation, amounting to only 2 or 3 percent of the total money supply. Coins are essentially "convenience money" in that they permit us to make all kinds of very small purchases.

Paper Money. Much more significant than coins, paper money constitutes about 25 or 26 percent of the economy's money supply. The coin and paper money components of the money supply are frequently lumped together and simply labeled currency.

Demand Deposits. The safety and convenience of using checks, or bank money, have made demand deposits (checking accounts) the most important type of money in the United States. Despite the integrity of postal employees, one would not think of stuffing, say, $4,896.47 in an envelope and dropping it in a mailbox to pay a debt; but to write and mail a check for a large sum is commonplace. A check must be endorsed by the person cashing it; the drawer of the check subsequently receives the canceled check as an endorsed receipt attesting to the fulfillment of the obligation. Similarly, because the writing of a check requires endorsement by the drawer, the theft or loss of one's bankbook is not nearly so calamitous as would be the loss of an identical amount of currency. It is, furthermore, more convenient to write a check in many cases than it is to transport and count out a large sum of currency. For all these reasons, checkbook money has come to be the dominant form of money.

It might seem strange that demand deposits or checking accounts are a part of the money supply. But the reason for their inclusion is clear: Checks, which are nothing more than a means for transferring the ownership of demand deposits, are generally acceptable as a medium of exchange.² Furthermore, demand deposits can be immediately converted into paper money and coins on demand; checks drawn upon demand deposits are for all practical purposes the equivalent of currency.

To summarize:

Money, M_l = demand deposits + currency

Currency is essentially government-created money, and demand deposits are bank-created money.

M2 money includes M1 money plus less-immediate forms of money, such as saving accounts, money market mutual fund account, money market deposit accounts, repurchase agreements, and small-denomination time deposits.

M3 money supply is M2 money plus large-denomination time deposits and large-denomination repurchase agreements.

Money circulation is subject to definite conformities to the law. The law of money circulation consists in the observance in circulation of necessary money.

Money circulation consist of two types:

· Cash-money circulation is traffic of banknotes and different coins

· Non-cash-money circulation is motion of checking accounts.

The modern money system includes: monetary item, scale of prices, emission system (order of money issue) and money adjustment (state and credit machinery).

Monetary unit is bank-notes legislatively set.

Emission system is the issue banknotes released by central bank, and treasury notes and coins - by the state treasury according to the legislation.

There are two kinds of money systems: with metallic circulation and with paper-credit money circulation.

The metallic systems are bivalent where gold and silver are general equivalent, and monometallic, when this role is performed by one metal either gold or silver.

The modern money system has definite characteristic features and is based on credit-paper moneys.

The “Law about the money system” is legal basis of functioning of the money system in Ukraine. This law determines, that an hryvnia is the official monetary unit (currency) of Ukraine, and the issue of other monetary units is prohibited. Officially, the correlation between hryvnia and gold or other precious metals is not stated. Exceptional right for the issue of paper moneys and coins, their organization and withdrawal from the circulation on territory of Ukraine belongs to the Central Bank of Ukraine.

5. Inflation and its reasons. Mechanism of inflation

Such negativity processes as inflation and deflation occur when of amount of money is changed without the change of other constituents of money circulation.

According to M.Fridman: ‘Inflation occurs when the quantity of money rises appreciably more rapidly than output and the more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation. There is probably no other proposition in economics that is as well established as this one.

In examination of the very long run in history reveals that there was a clear and close relationship between money and prices over many centuries. A look at the monetary history over the long run reveals that inflation appeared in periods when money was somehow expanded, such as periods of continuous inflow of metal during the commodity money standards. The real rapid inflation occurred in the 20th century however, the century when paper money was introduced and so enabled the government to expand the monetary base to extreme proportions. Historical evidence serves well to illustrate that ‘inflation is always and everywhere a monetary phenomenon'.

Inflation is the overall increase in prices, and a decrease in the price level is called deflation. Consequently the rate of inflation stands for the percentage change in the overall level of prices. Where price is the rate at which money is exchanged for a good or a service. Therefore inflation is a change in the rate at which money can be exchanged for goods and services in the economy. It the operation in economic and social sphere is destructive. Therefore comprehension of this danger, reasons, it generating, and necessary measures for it of overcoming, — major economic task of modern period.

The term “inflation” (from lat. Inflatio) literally means “swelling”.

In modern understanding inflation — phenomenon integrally connected to a rise in prices. It is measured in reciprocals from a rise in prices.

The modern inflation is connected not only to a falling of a buying power of money as a result of a rise in prices. The first reason of inflation — disproportion between various spheres of facilities (economy): by accumulation and consumption, supply and demand, incomes and expenditures of the state, money supply in circulation and necessities of facilities (economy) in money. Therefore modern inflation is multilateral the phenomenon that allows in learning inflation to select both money, and monetary factors. Besides it is necessary to distinguish the internal and external factors (reason) of inflation.

The overall price level naturally has to be measured since no ready observation of this quantity can be made. Given the computational difficulties involved in taking the average of all prices, samples are used that are thought to accurately represent this level. Thus the rate of inflation measured and reported very much depends on the sample of goods included and the relative weights used. This has to be borne in mind when critically assessing inflation figures across countries, industries and even time.

The inflation can be measured through indexes that allow defining (determine) rates of inflation. Depending on growth rates of the prices in the market distinguish slowly, galloping and hyperinflation.

Depending on the reason (factors) distinguishes a demand-pull and inflation of production costs.

The demand-pull results from redundant demand, i.e. the demand for the goods exceeds their availability. The demand-pull is stipulated:

· By growth of military expenditures;

· By deficiency of the budget and growth of a national debt;

· By credit expansion of banks;

· By inflow of a foreign exchange.

As a whole demand-pull is observed in the event that the growth of a price level occurs under influence of common increase of an aggregate demand.

The inflation of production value is derivate by monetary factors. The reasons of such inflation:

· Lowering of growth of productivity of work caused by cyclic and structural changes;

· The extension of sphere of services, large densities of the salary in comparison with productivity of work, that carries on to a rise in prices;

· Rise of payment of work under effect of trade unions, that untwists an inflationary spiral;

· High indirect taxes.

The main reason of inflation is incorporated in mismatch of money and documentary weight — in the release in call of the non-cash and cash money, which has been not supplied with the goods. The exceeding of a money supply above documentary is the first tag of depreciation of money.

So, inflation is a rising general level of prices.

Economists distinguish between three types of inflation.

1. Demand-Pull Inflation. Traditionally, changes in the price level have been attributed to an excess of total demand. The economy may attempt to spend beyond its capacity to produce. The business sector cannot respond to this excess demand by expanding real output for the obvious reason that all available resources are already fully employed. Therefore, this excess demand will bid up the prices of the fixed real output, causing demand-pull inflation. The essence of demand-pull inflation is often crudely expressed in the phrase "too much money chasing too few goods."

The price level generally begins to rise before full employment is reached. At full employment, additional spending tends to be purely inflationary.

2. Cost-Push Inflation. Inflation may also arise on the supply or cost side of the market. There have been a number of periods in our recent economic history wherein the price level has risen despite rather widespread evidence that aggregate demand was not excessive. We have experienced periods wherein output and employment were both declining (evidence of a deficiency of total demand), while at the same time the general price level was increasing.

3. Structural Inflation. A less widely cited explanation of inflation centers upon the effects of a change in the structure, though not the level, of aggregate demand. The rationale for structural or demand-shift inflation is based on the fact that for a number of reasons — a basic one of which is the market power of big businesses and unions — prices and wages tend to be flexible upward but inflexible downward. Let assume that total demand is not excessive, but that a rather sharp change in the structure or composition of total demand occurs. This structural change in demand means that prices and wages will rise in those segments of the economy experiencing an expanding demand. However, because of their downward stickiness, wages and prices will not fall in those sectors of the economy wherein demand has declined. The result is a net increase in price and wage levels; that is, inflation will', occur.

It must be emphasized that these three theories — demand-pull, cost-push, and structural inflation — a re not unrelated or mutually exclusive. All three can operate simultaneously. For example, an excessive level of total demand whose composition is significantly changing can cause both demand-pull and structural inflation simultaneously. And the exertion of market power may cause cost-push forces to accentuate this inflation, particularly in those industries where unions are strong and businesses concentrated.

Empirical Evidence. Empirical research suggests that, since World War II, inflation has brought about a massive redistribution of wealth from the household to the public sector of the economy. There are two reasons for this. First, governments have incurred very large debts and, to a considerable extent, households have held government bonds. That is, governments are large debtors and households have been their creditors. The postwar inflation has consequently shifted wealth from households to government. Secondly, Federal income tax rates are progressive. Hence, during inflationary periods people pay more taxes, not only because their money incomes are higher, but also because they move into higher tax to hoard both materials and finished products in anticipation of further price increases. But, by restricting the availability of materials and products relative to the demand for them, such actions will tend to intensify inflationary pressures. Rather than invest in capital equipment, businesses and individual savers may purchase nonproductive wealth — jewels, precious metals, real estate, and so forth — as hedges against inflation.

In the extreme, as prices shoot up sharply and unevenly, normal economic relationships are disrupted. Business owners do not know what to charge for their products. And consumers do not know what to pay. Resource suppliers will want to be paid in kind, rather than with rapidly depreciating money. Creditors will avoid debtors to escape the repayment of debts with cheap money. Money becomes virtually worthless and ceases to do its job as a standard of value and medium of exchange. The economy may literally be thrown into a state of barter. Production and exchange grind toward a halt, and the net result is economic, social, and very possibly political chaos. Hyperinflation has precipitated monetary collapse, depression, and sociopolitical disorder.

Unfortunately, history reveals a number of examples that fit this gloomy scenario. These are typically instances of wartime or war-associated inflation, which accelerated into galloping inflation with disastrous results. Consider the effects of World War II upon price levels in German.

The German inflation of the 1920s was also catastrophic. The German Weimar Republic is an extreme example of a weak government, which survived for some time through inflationary finance. On April 27, 1921, the German government was presented with a staggering bill for reparations payments to the Allies of 132 billion gold marks. This sum was far greater than what the Weimar Republic could reasonably expect to raise in taxes. Faced with huge budget deficits, the Weimar government simply ran the printing press to meet its bills.

During 1922, the German price level went up 5,470 percent. In 1923, the situation worsened; the German price level rose 1,300,000,000,000 times. By October of 1923, the postage on the lightest letter sent from Germany to the United States was 200,000 marks. Butter cost 1.5 million marks per pound, meat 2 million marks, a loaf of bread 200,000 marks, and an egg 60,000 marks. Prices increased so rapidly that waiters changed the prices on the menu several times during the course of a lunch. Sometimes customers had to pay double the price listed on the menu when they ordered.

What can be concluded from this discussion of the output effects of inflation? Only that the relationship between inflation and unemployment is uncertain, depending upon the cause and the rapidity of the inflationary process.

CONCLUSIONS

1. Public production is always developing and perfecting.

2. Today commodity production prevails above natural one and is characterized by the fact that products are produced by the separated commodity producers for public consumption, and as a result of exchange products become commodities.

3. Value and exchange value are basic properties of commodity.

4. Quality of the made products is the most substantial factor of exchange value.

5. Money performs the basic functions of medium of exchange, standard of value and store of value.

6. Violation of money circulation results in inflation and deflation.

7. Inflation may have various causes according to which we can distinguish the demand-pull, cost-push, and structural theories of inflation.

TEST QUESTIONS

1. Describe the basic forms of social production.

2. Give description of natural production.

3. Give description of commodity production.

4. What is the basic difference between product and commodity?

5. What is consuming value?

6. What is exchange value?

7. What is the quality as basic feature of exchange value?

8. Features of quality of medical care.

9. What basic principle of quality of medical care?

10. What is essence of law of value?

11. Analyze the function of law of value.

12. What is the essence of money as economic category?

13. What functions of money do you know?

14. What is equation of exchange by I. Fisher?

15. Give description of money system.

16. What types of violation of money circulation do you know?

17. What are the reasons of inflation?

BASIC TERMS AND CATEGORIES

Natural production is production of goods solely for own consumption.

Commodity production is specific type of social production when separate proprietors produce some goods; and buying and selling of commodities on the market is necessary for satisfaction of social needs.

Product is material goods and services made in labor process.

Commodity is labor product made for exchange.

Quality is correspondence to some characteristics, which provide usefulness of given product or commodity.

Consumer value is ability of commodity to satisfy some necessity

Value is the expenditures of abstract socially necessary labor embodied in a commodity.

Concrete labor is spent in a definite form, i.e. the professionally shaped labor.

Abstract labor is embodiment of labor common to all mankind, that it is the expenditure of labor force.

Law of value is exchange of equivalents between producers and its purchase at the market according to socially necessary charges for their production.

Money is a general documentary equivalent, universal remedy of exchange.

Money circulation is uninterrupted money traffic in circulation sphere and performing the function of medium of circulation and payment.

Money system is form of organization of money circulation that was formed in the given country historically and fixed by national legislation.

Monetary unit is a banknote legislatively set.

Emission system is the money issue banknotes released by a central bank, and treasury notes and coins by the state treasury according to the legislation.

Inflation is the process of depreciation of money as a result of exceeding of amount of money, which is accompanied by overall increase in prices.

Deflation is the process of reduction of amount of money and withdrawal from the circulation part of the money, which is accompanied by decrease in the price level.

FINANCES, CREDIT AND MONEY CIRCULATION

Plan

1. Essence and functions of finances. Principles of construction of state financial systems. The state budget.

2. State financial policy. Instruments of financial policy.

3. Mechanism of the state economic regulation.

4. Essence of credit. Banks and banking system.

5. Banks. Features of bank as commercial establishment.

6. Monetary policy. Monetarism.

1. Essence and functions of finances. Principles of construction of state financial system. The state budget

Money funds are able to move away from traffic of commodities and carry out relatively independent traffic that stipulates for existence of financial and credit and monetary relations.

When an enterprise forms, for example, a sinking fund, either wage-fund or fund of circulating assets, practically money begin the independent appeal torn off from the appeal of commodity. Money funds can have the most various enterprises, organizations either individuals or state and this isolation do them by finances.

Money facilities as finances have following features: they come forward as money resources, that is, how potential circulating mediums. That is why finances are money form of resources of production and consumption. Accordingly, finance means providing money funds on the necessities of production and consumption.

So, finance is money resources, which have special purpose.

Finances is the system of economic relations, which arose up between the state, juridical and natural persons, between the separate states concerning forming, distributing and use of funds of money facilities. But not all money relations are financial. Finance is the economic instrument of distributing and redistribution of GNP means of control after creation and use of money facilities. Consequently, finance is no money or money profits, and anymore-economic relations. Therefore they do not engulf the relations concerning those money facilities, which serve the personal necessities of population, domestic, communal, payment of services of social infrastructure, processes of buying and selling between separated persons and so on.

Money system is closely connected and interlace with financial system. Financial system has a great influence not only on distribution and changing, but on production and consumption.

Essence of finance we can see by basic function, such as:

· control

· distributing

· stimulus

· fiscal.

Distributing function means providing of business by necessary financial resources. Through finances Gross Product an National Income are distribute3d between different economic spheres, branches or economic subjects. Through finances labor, material, capital and natural resources are distributed between sphere and separated productions. Through taxes state budget concentrated money which goes for development of production and social infrastructure, for investment in branches with capital and fund capacity. Finances contribute to incomes forming in shape of pension, grants etc.

Reproductive function provides for creation necessaries social reproductive funds: amortization funds, consumption funds, accumulation funds etc. These funds are formed on different levels of national economy beginning from separated business to state funds.

Accounting and control function stipulates control for execution of financial obligatory. After financial traffic we can see work of business, branches and economy. It is possible to show scales of business activity after taxes size and salary. Gross Natural Product has value form and it’s possible through it to show production processes.

Stimulus function is connected with financial discipline and is shown in maneuverability of taxes rates, privileges and fines. State can fix some taxes and cancels another for acceleration of separated branches or priority directions development.

Regulative function means that state can influence on individual business, branches and regions by fixing privileges, canceling and reduction some taxes, subsidies and loans. State can also influence on section of the population by setting those privileges, subsidies by changing pension sizes or grants for forming general social climate in the state.

Fiscal function of finances means that in interests of treasury the obligatory of payments in definite volumes and in the set terms is foreseen. Part of profits of enterprises, firms and citizens is withdrawal for maintenance of state machine, army and that part of non-productive sphere which generally haven’t own sources of profits (libraries, archives) is achieved, or they insufficient for providing of the proper development (science, theaters, museums).

Political function of finances means that they can provide success or failure of domestic and external policy of government. Thanks to finances national elections are conducted and results of which considerably rely on sponsorship of candidate. Finances determine defense capacity of the state, its economic and political integrity.

Thus, we can draw conclusion that finances have universal positions and are fundament of economic, social and political system of society.

So, finances is financial resources which have a special purpose, they can be in the states (in the person of its organs), at enterprises and organizations and at families or separate economies. They can move from one subject to other, that is creating the financial relations. These relations arise up concerning creation, accumulation, distribution and use of free money facilities or money resources. Aggregate of financial relations creates financial system.

State, enterprise and population are the basic subjects of financial relations.

State as a subject of financial relations presents state organs or establishments. It is public authorities: Supreme Soviet of Ukraine, Administration of President, Cabinet of Ministers, separate ministries, Treasury, National bank of Ukraine, Tax service and other levels of state establishments.

Enterprises are not only industrial or agricultural, but also other establishments, funds, companies, exchanges, that is all those structures, which do not belong to the state structures.

Population is domestic or other housekeeping, which are united by common incomes.

Bank is also subject of financial relations, because most computations between subjects are carried out through banks or through fund markets.

Depending on localization of money finances can be:

· Centralized;

· Decentralized;

· Finances of housekeeping.

Centralized finances are the state financial budgetary system, state credit, special non-budgetary funds, funds of property and personal insurance.

Decentralized finances are finances of business and firms of the most various forms of ownership. Finances of firms, business and branches of national economy make the basis of finances. Fundamental part of financial resources is formed here. State finances depend on business finances.

Finances of housekeeping or finances of population are personal finances. (salary, incomes, percent, rent etc.).

From the point of view of macroeconomic analysis and state role in development of national economy, state finances have the special value. State budget is the central link of state finances, i.e. basic financial plan of country, plan of forming and use of the centralized money fund of the state. The structure of the state budgetary system relies on a state system.

Taxes on an income, excises, tax on the added cost, duties customs, and also fines come forward the basic incomes of state budget.

Budget is estimate of income and expenditure for a future period as opposed to an account, which records financial transactions.

Budgets are an essential element in the planning and control of the financial

affairs of a nation or business, and are made necessary essentially because income and expenditure do not occur simultaneously.

In modern large-scale business, the annual budget, which is normally broken down into monthly and weekly periods, is a complex document that may take several months to prepare. The starting-point will be an estimate of sales and income for the period, balanced by budgets for purchasing, administration, production, distribution and research costs. There will also be detailed budgets of cash flows and capital expenditure. These are often also made for periods of further than one year ahead, so that borrowing requirements and capacity requirements can be assessed.

Any budget has incoming and expenditure parts. If they are identical, so budget is balanced, if incomes prevails expenditures, so we have proficiency budget, and if the other way round – deficiency.

Incoming part of budget is formed due to taxes.

We must distinguish between two fundamentally different types of governmental outlays.

Purchases. Government purchases of goods and services are virtually self-defining. This concept refers to such ordinary governmental purchases as paper clips, typewriter ribbons, automobiles, and school buildings, as-well as to such uniquely social goods as jet fighters, atomic submarines, superhighways, and space capsules. Purchases of services include the hiring of clerks, schoolteachers, judges, military personnel, and so forth. Government purchases are often called exhaustive v in that they directly absorb or employ resources, and the resulting production contributes to the national output.

Transfers. Transfer payments, on the other hand, are disbursements for which government currently receives no products or services in return. Most government insurance and income-maintenance programs fall in this classification: for example, social security payments to the aged, unemployment compensation, welfare payments, and aid to the handicapped. Some transfer payments, called subsidies, go to businesses. Because transfer payments rechannel tax revenues back to households and businesses, these payments in effect are "negative taxes." Transfers are frequently labeled non-exhaustive because, as such, they do not directly absorb resources or account for production.

There is a noteworthy difference between transfer payments and government purchases of goods and services. Through government spending on goods, society tends to reallocate resources from private to social goods consumption. Through transfers, government changes the composition of the output of private goods.

Income security and health, national defense, international affairs, science, space, and technology, education, training, and social spheres, commerce and transportation, natural resources, environment, and energy are also budget expenditures.

2. State financial policy. Instruments of financial policy

The purpose of financial policy is directed on providing of growth of welfare of population and determined by economic position of country and standard of living of its citizens. Correct financial policy relies on critical and real estimation of economic situation in the state.

The measures of state on mobilization of financial resources, their distributing and use on the basis of financial legislation of country are financial policy.

Financial policy consists of two directions of state activity: 1) fiscal policy is state activity in taxation and regulation of government spending structure in interests of treasury with the purpose of stabilization of economy; 2) budgetary policy is state activity in sphere of regulation of state incomes and expenditures.

Fiscal policy foresees the use of government possibilities to influence through taxes and uses of finances of the state budget for regulation of business activity, decision of various social tasks. Changes of tax rates, bases of taxation, types and quantity of taxes and also expenditure from the state budget are basic key factors of state fiscal policy.

There are different approaches on pursuing a fiscal policy. The supporters of Keynes’ direction are traditionally oriented on creation of effective gross demand as a stimulus of economic development. Therefore they consider reduction of taxes as a basic factor of growth of gross demand and real production volume. There is reduction of entry in budget, so origin or increase of budgetary deficit is appears.

Budgetary policy, which has influence on economic state stability, is constituent of financial policy. In economic theory there are some conceptions of state fiscal policy.

The first conception is based on that a budget must be annually balanced. However, practice shows, such conditions of budget do not provide stable economic development. It is possible to illustrate on two examples.

First, we will assume that an economy ran into the continued period of unemployment. The profits of population fall. At such circumstances the lump sum of taxes automatically grows short. For making budget balance government must either increase rates of taxes or state expenditures or to put together these two methods. More of reduction of the gross demand will be result of these measures.

The second example shows as necessarily to balance a budget can stimulate inflation. In the conditions of inflation at the rise of money profits the taxes are automatically multiplied. For warning of possible proficiency a government must adopt such measures: either to lower taxes rates, or increase governmental expenditures, or to unit both. Strengthening of inflation can be result of it.

The second conception of budgetary policy is based on that a budget must be balanced during an economic cycle, and not annually. According to given conception, government carries out the anti-cycle influencing and tries to balance a budget.

State debt is resulted from use of loans and linked with budget deficiency.

Debt is sum of money or other property owned by one person, organization to another. Debt comes into being through the grant of credit or through raising loan capital. Debt service consists of paying interest on a debt.

National debt is total outstanding borrowings.

External debt is debt to the foreign states, organizations and persons. Foreign credits, as a rule, are given after execution of definite obligations. Budgetary deficiency and national debt is constrained between itself, so as state loans undertake for coverage of budgetary deficiency.

Externally held debt is a burden. This part of the public debt obviously is not “owed to ourselves”, and in real terms the payment of interest and principal requires the transfer of a portion of real output to other nations.

Internal debt is relations into a country, and a national debt is simultaneously and state credit.

The reasons of origin of budgetary deficiency and national debt can be different. But for countries with a market economy there are the three basic: considerable part of national debt arises up when a country had large soldiery expenditures; considerable vibrations of economic activity increase a national debt.

The very existence of a large debt tends to be inflationary. This is so for the following reasons:

1. Because they are highly liquid assets, the possession of government bonds makes consumers feel wealthy. This feeling of wealth leads to greater consumption out of their incomes. In short, the existence of a large public debt tends to shift the consumption schedule upward. If the economy is already at full employment, this shift will be inflationary.

2. Furthermore, government bonds can be converted into money easily and with little or no risk of loss. Government bonds, therefore, constitute a potential backlog of purchasing power, which can add materially to inflationary fires.

We must not forget that debt plays a positive role in a prosperous and growing economy. We know that as incomes expends, so does saving. Keynesian employment theory and fiscal policy tell us if aggregate demand is to be sustained at the full-employment level, this expending volume of saving or its equivalent must be obtained and spent by consumers, business, or government. The process by which saving is transferred to spenders is debt creation. Now, in fact, consumers and businesses do borrow and spend a great amount of saving. But if household an businesses are not willing to borrow and thereby to increase private debt sufficiently fast to absorb the growing volume of saving, an increase of debt must absorb the

remainder or the economy will falter from full employment and fail to realize its growth potential.

3. Mechanism of economy state regulation.

State has enough key factors, facilities and methods for influence on level of economic development and standard of living of society.

All facilities can be divided into direct action facilities and mediated action facilities.

Facilities of direct action foresee direct communication of subject (states) with object of influencing (economy and its agents). It is key factors of administrative influencing, which are used within state sector.

Administrative influence of state on economy:

1. Fight with secret employment.

2. Support of sole proprietorship.

3. Control of private commercial banks.

Legislative influence of state on economy:

1. Fight with monopoly.

2. Code of laws about labor.

3. Setting up of minimum salary.

4. Norm of safety devices.

5. Legislation about environmental protection.

6. Legislation about health care.

The mediated influencing puts the guided subjects of economy before the choice. State uses all possible facilities, creates such conditions, that this choice happened purposefully.

Mediated influencing of state on economy:

· tax and budgetary facilities;

· money and credit facilities.

4. Essence of crediting. Banks and banking system

In the process of investment funds traffic part of cost from products realization as money and commodity values frees oneself, so as not always the real necessities at separate participants of production coincide with the cost of the realized products. That is, at one there are temporally free money, at other are free material resources, and at the third – urgent necessity at them. In such terms there were the economic terms of credit.

Latin word “creditum” means loan, debt. At the same time it means – I trust (“credo”).

After the term of returning a credit divides on long-term and short-term. Long-term credit is given on a term more than year and served traffic of general funds. Short-term credits are given by a term to one year and served the rotation of circulating assets.

At the market credit comes forward in such forms: commercial, bank, consumer, mortgage, inter-bank, state and international. They differ one from other by an entry list, object of loan, dynamics and size of percent and functioning sphere.

Commercial credit is got one enterprise to other with the postponement of payment. If commodities allot credit, the bill of exchange is mean of such credit. It is paid through commercial bank. A percent on commercial credit is included in commodity cost and in bill of exchange sum.

Banking credit is got banks to other credit establishments, population, state and etc. as money loans. On comparison with commercial, bank credit has wider sphere of the use.

Consumer credit is got by trading companies, banks, by special credit and financial institutes for the receipt by population of goods and services with the postponement of payment. As a rule with the help of such credit the commodities of the protracted use will be realized.

Mortgage credit is credit in security for real estate. It is given, as a rule, on the purchase and building of habitation, acquisition of earth. Mortgage credit is considered one of most reliable for creditors.

Inter-bank credit is such form of credit where banks are creditor and debtor.

It follows to divide state credit into state credit and national debt. In the first case state credit institutes credit different sectors of economy. In the second case the state lends money in banks and other financial and credit institutes (placing of state securities at the financial market) for financing of budgetary deficit of national debt.

International credit represents traffic of borrowed capital in sphere of international economic currency and financial relations. Private banks, firms, state and currency and financial establishments, come forward creditors and borrowers.

So, all relations associated with lending of money or commodities in a debt with percent payment are named credit relations. Credit relations are all types of relations associated with money or commodity loans and which arise up on basis of urgency, requiring payment, returning, and guarantee. Possibility to receipt of income as percents for credit is basis of credit relations. Size of percent depends on many factors (demand and supply on the borrowed capital at the money market, economic state of market, process of inflation etc.).

State credit system is presented by a bank, commercial, consumer, state and international credit, and as aggregate of credit institutes. They consist of the banking system and non-bank credit and financial institutes. In world practice investment funds, savings-banks, financial and insurance companies, non-state pension funds, pawn-shops belong to the non-bank financial and credit institutes. These institutes formal are not banks; however they execute a lot of bank transactions and compete with banks. The origin of non-bank financial and credit institutes is conditioned by development of the risk financing. They are engaged in crediting of definite spheres or types of economic activity and have a specific clientele.

After banks the first place after the size of assets in the world is played by insurance companies. They occupy leading positions at the market of capitals. Insurance companies sell insurance policies and accumulate large sums on the protracted term. This allows them to multiply investments in long-term securities with fixed terms of redemption that brings high profits.

Second seat is taken by borrowed and savings associations with the expressly limited functions. People, who brought own savings in association, become its shareholders and get profits as dividends.

Investment activity is important direction of banks specialization. Accordingly there are investment banks. They mobilize the long-term borrowed capital. Such banks are engaged in finding of character and sizes of financial necessities of loan-holders in the choice of securities form, carry out its emission and place it among investors.

Financial companies are variety of credit and financial establishments. They specialized on crediting of separate industries or grant of definite types of credit (consumer, investment).

5. Bank. Features of bank as commercial establishment

Legal framework of banks, order of creation and basic principles of their activity in Ukraine are determined by Law “About banks and bank activity”. Ukraine independently organizes the banking system, which is a two-tier and consists of the National bank of Ukraine and commercial banks of different forms of ownership.

History about the goldsmiths

When the ancients began to use gold in making transactions, it soon became apparent that it was both unsafe and inconvenient for consumers and merchants to carry gold and to have it weighed and assessed for purity every time a transaction was negotiated. Hence, it became commonplace to deposit one's gold with goldsmiths who possessed vaults or strong rooms which, for a fee, they were willing to make available. Upon receiving a gold deposit, the goldsmith would issue a receipt to the depositor. Soon goods were traded for the goldsmiths' receipts and the receipts became an early form of paper money.

At this point the goldsmiths — now embryonic bankers — utilized a 100 percent reserve system, that is, their circulating paper money (receipts) were fully backed by gold. But, given the public's acceptance of the goldsmiths' receipts as paper money, the goldsmiths became aware that the gold they stored was rarely redeemed. In fact, the goldsmiths found themselves in charge of "going concerns" wherein the amount of gold deposited in any week or month was likely to exceed the amount redeemed. Hence, it was only a matter of time until some particularly adroit goldsmith hit upon the idea that paper money could be issued in excess of the amount of gold held! The goldsmith would put this additional paper money into circulation by making interest-earning loans to merchants, producers, and consumers. At this juncture a fractional reserve system of banking came into being. If, for example, our ingenious goldsmith made loans equal to the amount of gold stored, then the total value of paper money in circulation would be twice the value of the gold so that reserves would be 50 percent of outstanding paper money.

A system of fractional reserve banking — which is the kind of system we have today — embodies two significant characteristics.

Money Creation and Reserves Banks in such a system can create money. When the goldsmith of our illustration made loans by giving borrowers paper money, which was not fully backed by gold reserves, money was being created. Obviously, the quantity of such money the goldsmith could create would depend upon the amount of reserves it was deemed prudent to keep on hand. The smaller the amount of reserves, the larger the amount of paper money the goldsmith could create. Although gold is no longer used to "back" our money supply, bank lending (money creation) today is constrained by the amount of reserves banks feel obligated, or are required, to keep.

Bank Panics and Regulation Banks, which operate on the basis of fractional reserves, are vulnerable to bank "panics" or "runs." Our goldsmith who has issued paper money equal to twice the value of gold reserves obviously cannot convert all that paper money into gold in the unlikely event that all the holders of that paper money appear simultaneously demanding gold. In fact, there are innumerable instances of European and American banks ruined by this unfortunate circumstance. On the other hand, a bank panic is highly unlikely if the banker’s reserve and lending policies are prudent. Indeed, the presentation of bank runs is the basic reason why banking system is highly regulated industries.

Bank is business, which provides to the clients (to the depositors or borrowers) financial services and gets the payment. Thus a bank executes two basic functions: active and passive.

We will consider the features of bank as commercial establishment. Bank is commercial establishment, which works as an ordinary market enterprise that is on the basis of profitability and risk. However, its activity within the framework of really present resources is basic principle of successful bank work. Here the high-quality must coincide as quantitative equality of resources.

For providing of own safety a bank abandons the definite fixed part of deposits “uninvolved”. This is banking reserves.

This reserve deposit is an amount of fund equal to a specified percentage of its own deposit liabilities, which a member bank must keep, on deposit with national bank in its district.

The “specified percentage” of deposit liabilities, which the commercial bank must deposit in the central bank, is known as the reserve ratio.

Norm of banking reserve =	Obligatory reserve of commercial bank	×100 %
	Obligation of commercial bank under deposits “general delivery”

Traditionally bank is considered as establishment which adopts assets and gives out the loans. These operations behave to active or to passive.

Passive operations of bank are the operations of money mobilization. This money is fundament of bank activity. Active operations are the operations on placing of money (deposits are investment or client’s accounts). They are traditional for any bank.

Nowadays the trust operations are modern operations of bank. They are special form of mutual relations with clients, holders of money accounts, property and other values give a right or trust independently to banks to place their with most benefit, and bank gets the definite reward for that.

The special group of operations consists of financial and exchange services. This is management by the share holding, consultation, budgetary and tax planning and etc.

In history of banks development of different countries some types of the banking system are known:

- two-level (central bank and system of commercial banks);

- the centralized mono-banking system (banking system of USSR);

- the exceptional decentralized banking system (Federal Reserve System of the USA).

In most countries with the developed market economy there is the two-level structure of the banking system.

Central bank has such function enters:

- emissions of national money signs, organization of appeal and money withdrawal;

- to conduct the common supervision after activity of credit-financial establishments of country and executes the function of financial legislation;

- to give credits to commercial banks;

- to issue and redemption of state securities;

- to complete management of government accounts and foreign financial operations;

- to complete regulation of bank liquidity.

In most countries a central bank is state establishment. But in those case, when a central bank formal is not state (for example, the Federal Reserve System of the USA, Swiss national bank) or the state has part of capital (for example, Bank of Japan – 55%), it actions are regulated by government instructions.

Commercial banks as specialized credit institutes complete the operations on maintenance of population. Exactly these banks in the West are the basis of the credit system. Commercial banks in modern terms complete from 100 to 300 types of operations: giving of saving accounts, non-cash transfers of money, reception of holding, various crediting, purchase of securities, trust operations, saving of values in safes etc.

6. Money and credit policy. Monetarism

The money theory lies in the basis of monetary policy.

Scientists interpret the money theory from two well-known positions: modern Keynes’ theory, and modern quantitative money theory – monetarism.

Both theories admit that the change of money supply influences on nominal GNP, but they estimate the value of influencing and mechanism by different ways. From Keynes’ point of view in the basis of monetary policy definite level of interest rate is fixed, and from monetarisms’ point of view – money supply.

Economists within the classical tradition challenged the idea that money velocity is constant in the 1970s. Their reformulation of the classical view on money became known as monetarism.

In a sense, the monetarist view of money was an attempt to rescue the classical view from the onslaught of empirical evidence that showed that Ml money velocity was anything but constant.

Monetarists accept the idea that velocity is not constant; nonetheless, they believe that it is still highly predictable, well behaved, and independent of money supply.

They explain the steady increase in money velocity since the 1950s in USA by pointing to the technological changes associated with the transactions demand for money. For example, the use of computers speeds up the banking process. Also, the widespread use of credit cards allows people to buy and sell goods and services with less cash and lower bank balances relative to nominal GDP. The result: higher money velocity. Since technologies in money and banking are still developing and pay periods are becoming more frequent, monetarists believe it is reasonable to predict increases in velocity over time, and for the short run at least, they believe the increases will be well behaved.

In the end the monetarist version of the quantity theory of money still leads to the same classical conclusion: Although money cannot influence how much we produce, it does influence the prices of the goods and services we produce.

It is possible to do a small resume on a Keynes theory:

1. A market economy presents unsteady system with internal defects, therefore state must regularly use the various instruments of regulation (credit and monetary).

2. Connection of money supply and nominal GNP is such: the change of money supply is reason of change of interest rate that causes change in investment demand and nominal GNP.

Stagflation is such state of economy, which is accompanied simultaneously by the low rates of production growth or falling and simultaneously price advance that is by high inflation rates and unemployment.

The modern theoretical models of monetary policy present synthesis of Keynes’ theory and monetarism.

Credit and monetary policy is important direction of economy state regulation. With the purpose of influence on money supply such methods are used, as:

1) Open-market operations;

2) Change of reserve level;

3) Discount policy.

Open-market operations are most important control of money supply. This is purchase or sale of state bonds. At these operations, the Central bank can pump out or leave free reserves of commercial banks. Buyers (large firms, insurance companies, commercial banks) of state bonds will pay for bonds by check due to own bank deposits. Soon central bank produces these checks on payment to the banks. These banks lose the proper sum of the reserves-deposits. Reduction of reserves diminishes possibilities of crediting, and this has influence on supply of money amount and on inflation. If a central bank buys securities at the opened market, reserves of commercial banks are increased. Then banks can multiply loan businesses; as a result money supply in a country grows.

Change of reserves level. Commercial and other banks have legislative reserve norm. We will follow hypothetical example. Possibly, that commercial bank has reserve in the Central bank a 5 thousand of UAH, and deposits without time-limit are evened 20 thousand of UAH. If we have reserve norm 20%, obligatory reserves of commercial bank must be in a sum a 4 thousand of UAH. Bank has on a 1 thousand of UAH of additional reserve, and it means that a commercial bank can give this money in credit, that is “create a money”.

Discount policy. One of traditional functions of the Central bank is the loan to the commercial banks, which have hard financial position. A situation happens sometimes, when for commercial bank is necessity of urgent credit. This credit can give a central bank under the debt obligation of commercial bank. For this credit a central bank takes percent for the loan (discount rate). The management of central bank has a right to set and change a discount rate. Reduction of discount rate stimulates commercial banks to credit, and increase – vice versa. It is method of the reliable ceiling of money and credit emission channels.

CONCLUSIONS

1. Monetary funds are capable to be separated and to carry out independent movement.

2. Finances represent system of economic relations between subjects of economic activities concerning movement of money resources.

3. The basic functions of the finance is distributive, reproduced, control, stimulating, regulating, fiscal and political.

4. The basic subjects of financial relations are the state, the enterprise and the population.

5. Function of crediting of subjects of economic activities and citizens due to attraction of their means such establishment as carries out bank.

6. In Ukraine, as well as in the majority of the countries with the advanced economy bank system is two-level.

7. In the basis of monetary-credit policy of the state the theory of money in which basis ideas of keynesian and monetarism lays. The essence of it will consist in aggregate actions, which are carried out with the state with the purpose of regulation of economic increase, restraint of inflation, maintenance of employment and balance of the balance of payments.

TEST QUESTIONS

1. What are the causes of existence of financial and credit-monetary relations?

2. What does the finance represent?

3. Give the characteristic of the basic functions of the finance.

4. What is the basic purpose of the financial policy of the state?

5. What is the essence of the fiscal policy of the state?

6. What is the mechanism of state regulation of economy?

7. What is the essence of crediting?

8. What basic kinds of credits do you know? What is their essence?

9. On what the monetary and credit policy of Ukraine is directed?

BASIC TERMS AND CATEGORIES

Finance is provision of money when and where required. Finances may be short term (usually up to one year), medium term (usually over one year and up to five to seven years) and long term. Finance may be required for consumption or for investment.

Budget is estimate of income and expenditure for a future period as opposed to an account, which records financial transactions.

Financial policy is management of finances and finance relations in state interest.

Debt is sum of money or other property owned by one person, organization to another. Debt comes into being through the grant of credit or through raising loan capital. Debt service consists of paying interest on a debt.

National debt is total outstanding borrowings.

State debt is sum of debt before creditors that resulted from lack of money necessary for state for its functions.

External debt is debt to the foreign states, organizations and persons. Foreign credits, as a rule, are given after execution of definite obligations. Budgetary deficiency and national debt is constrained between itself, so as state loans undertake for coverage of budgetary deficiency.

Internal debt is relations into a country, and a national debt is simultaneously and state credit.

Mechanism of state regulation is state key factor for goal achievement, i.e. reduction or going out from economic crisis, full employment, overcoming of inflation and others goals for nation and state.

Credit is agreement between partners about giving money or property to other person in condition of postponement of recover a loan or restore property with percentages.

Commercial credit is got one enterprise to other with the postponement of payment. If commodities allot credit, the bill of exchange is mean of such credit. It is paid through commercial bank. A percent on commercial credit is included in commodity cost and in bill of exchange sum.

Banking credit is got banks to other credit establishments, population, state and etc. as money loans. On comparison with commercial, bank credit has wider sphere of the use.

Consumer credit is got by trading companies, banks, by special credit and financial institutes for the receipt by population of goods and services with the postponement of payment. As a rule with the help of such credit the commodities of the protracted use will be realized.

Mortgage credit is credit in security for real estate. It is given, as a rule, on the purchase and building of habitation, acquisition of earth. Mortgage credit is considered one of most reliable for creditors.

Inter-bank credit is such form of credit where banks are creditor and debtor.

Interest (percent) is creditor’s payment for use of borrowed money. It is correlation of interest sum to borrowed capital.

Bank is establishment that gives credit for economic subject or people at the expense of their money involving.

Money and credit policy is state measures for regulation of economic growth, inflation, employment and equilibrium of balance.

FINANCING OF PUBLIC HEALTH IN UKRAINE

Plan

1. Financing as the basis of public health organization.

2. Budget.

3. Estimate forming in public health system.

4. Public health of Ukraine under the conditions of economic crisis and public relations.

5. Essence of obligatory state medical insurance.

6. Guaranteed level of medical care.

1. Financing as the basis of public health organization

There are only three types of public health organizations in the world. Financial mechanism is the main determinant of belonging to definite type of the system.

Table 6.1

Name of system	Beverige system	Bismark system	Semashco system
Functional name	State system	Insurance	Centralized system
Country where system is function	Denmark, Sweden, Finland, Ireland, Greece, Italy, Spain, Canada, Norway, Portugal, Great Britain	Austria, Belgium, The USA, France, Germany, Netherlands	USSR republics Ukraine
Source of finances	State budget	Obligatory insurance payments	State budget
Mechanism of finances reception	General tax system	Accumulation by non-government funds	System of centralized planning
Labor payment of doctors	Fee system	Privet of contract	Fixed payments
Access of citizens to medical care	Free for all citizens	It is conditioned by terms of insurance to the policy	Free for all citizens
Control	State	Funds, public	State
Quality	High	High	Low
Participation of patients in payment of help	Partial cash payment	Payments by insurance policies	Do not pay
Ownership	State	State and private	State
Management	State	Decentralized	State

2. Budget

We will consider only a state health care system, which is based only on budget. What is the budget?

Budgets are an essential element in the planning and control of the financial

affairs of a nation or business, and are made necessary essentially because income and expenditure do not occur simultaneously.

In modern large-scale business, the annual budget, which is normally broken down into monthly and weekly periods, is a complex document that may take several months to prepare. The starting-point will be an estimate of sales and income for the period, balanced by budgets for purchasing, administration, production, distribution and research costs. There will also be detailed budgets of cash flows and capital expenditure. These are often also made for periods of further than one year ahead, so that borrowing requirements and capacity requirements can be assessed.

From the beginning of 1991 Ukraine became independent state with all elements of the own financial system: budget, national bank, monetary item, tax system, national financial legislation.

It was accepted "Law about the budgetary system of Ukraine". In 1992 Ukraine was the first to form the independent budgetary system, which consists of 11786 budgets:

The state budget of Ukraine	1
Republican budget of Crimea	1
Regional budgets	24
Local budgets of Kiev and Sevastopol	2
District budgets of rural districts	486
Local budgets of cities of regional submission	158
Budgets of inner-city districts	120
Budgets of cities of district submission	283
Budgets of settlement Council	915
Budgets of village Council	9796
All:	11786

Each of the given budgets according to the Law "About the budgetary system of Ukraine" and "About local self-government in Ukraine" is independent.

Organs of local self-government independently develop, confirm and execute local budgets, have a right independently to determine directions of finances use of local budgets according to the law.

Profits of local budgets are formed due to own, definite by a law, sources and fastened by the law national taxes and other obligatory payments. Expenditures are determined by local budgets of territorial communities. District, regional budgets are executed by local state administrations in purposes and volumes, established by corresponding Councils.

Any budget has incoming and expenditure parts. If they are identical, so budget is balanced, if incomes prevails expenditures, so we have proficiency budget, and if the other way round – deficiency.

Incoming part of budget is formed due to taxes.

Subject of taxation or payer is a natural or juridical person, which pays a tax.

Object of taxation is that is imposed tax for a payer. Payer is interested the object to be lesser, and the state – bigger.

Unit of taxation is unit of measuring of object of taxation. It can have money or physical form.

Tax rate is the percentage rate at which a tax is levied on a particular activity. Tax rates are divided on stable and percent.

Stable tax rates are fixed and non-fixed. Non-fixed stable rates are used in time of economic instability and inflation.

Tax quota is a part of tax in the profit of payer and characterizes level of taxation.

Taxes are ordinarily classified as being progressive, proportional, or regressive. These designations are focused upon the relationship between tax rates and income for the simple reason that all taxes-regardless of whether they are levied upon income or upon a product or building or parcel of land — are ultimately paid out of someone's income.

1. A tax is progressive if its rate increases as income increases. Such a tax claims not only a larger absolute amount, but also a larger fraction or percentage of income as income increases.

2. A regressive tax is one whose rate declines as income increases. Such a tax takes a smaller and smaller proportion of income as income increases. A regressive tax may or may not take a larger absolute amount of income as income expands.

3. A tax is proportional when its rate remains the same, regardless of the size of income.

Personal Income Tax. The personal income tax is the kingpin of national tax system and it therefore deserves rather extended comment. This tax is levied on taxable income, that is, on the incomes of households and unincorporated businesses after certain exemptions and deductions have been taken into account.

The personal income tax can be employed very effectively in pursuing these goals.

1. It is obviously capable of bringing in large amounts of revenue to finance social goods and services. Indeed, the progressive tax rates make tax collections very responsive to the long-run growth of the national income.

2. The personal income tax obviously has considerable potential for redistributing income. But we must be cautious on this point: We shall find momentarily that a variety of tax loopholes have eroded the income tax base and that its progressivity is substantially less than the table suggests.

3. A final and less obvious point is that a progressive income tax can help to stabilize the economy. For example, during prosperity, money incomes rise and total demand tends to outrun productive capacity so that inflation occurs. The fact that income tax rates are progressive means that tax collections will rise at a more rapid rate than incomes. These rising tax collections have the effect of diverting income from the expenditures stream, thereby lessening inflationary pressures. Conversely, as the economy backslides into recession and total demand is inadequate to maintain full v employment, tax collections decline at a more rapid rate than does income. This decrease tends to bolster the income-expenditures stream and to cushion the recession. In short, the automatic changes in tax collections, which accompany a progressive income tax, add an element of built-in stability to the economy.

Payroll Taxes. Social security contributions, or payroll taxes, are the premiums paid on the compulsory insurance plans, for example, old age insurance and Medicare, provided for by existing social security legislation. These taxes are paid by both employers and employees. Improvements in, and extensions of, our social security programs, plus growth of the labor force, have resulted in very significant increases in payroll taxes in recent years.

Sales, Excise, and Other Taxes. Commodity or consumption taxes may take the form of sales taxes or excise taxes. The difference between the two is basically one of coverage. Sales taxes fall on a wide range of products, whereas excises are taxes on a small, select list of commodities.

Let us illustrate in terms of the personal income tax. Suppose the tax rates are such that a household pays 10 percent of its income in taxes, regardless of the size of its income. This would obviously be a proportional income tax. But suppose the rate structure is such that the household with an annual taxable income of less than $1000 pays 5 percent in income taxes, the household realizing an income of $1000 to $2000 pays 10 percent, $2000 to $3000 pays 15 percent, and so forth.4 This, as we have already explained, would obviously be a progressive income tax. The final case is where the rates decline as taxable income rises: You pay 15 percent if you earn less than $1000; 10 percent if you earn $1000 to $2000; 5 percent if you earn $2000 to $3000; and so forth. This is a regressive income tax. Generally speaking, progressive taxes are those, which bear down, most heavily on the rich; regressive taxes are those, which hit the poor hardest.

Personal Income Tax. The incidence of the personal income tax generally falls on the individual upon whom the tax is levied; little chance exists for shifting. But there might be exceptions to this. Individuals and groups who can effectively control the price of their labor services may be able to shift a part of the tax. For example, doctors, dentists, lawyers, and other professional people who can readily increase their fees may do so because of the tax. Unions might regard personal income taxes as part of the cost of living and, as a result, bargain for higher wages. If they are successful, they may shift a portion of the tax from workers to employers. Generally, however, we can conclude that the individual upon whom the tax is initially levied bears the burden of the personal income tax. The same ordinarily holds true of inheritance taxes.

Corporate Income Tax We have already suggested that the incidence of the corporate income tax is much less certain. The traditional view has it that a firm, which is currently charging the profit-maximizing price and producing the profit-maximizing output, will have no reason to change price or output when a corporate income tax is imposed. That price and output combination which yields the greatest profit before the tax will still be the most profitable after government takes a fixed percentage of the firm's profits in the form of income taxes. According to this view, the company's stockholders (owners) must bear the incidence of the tax in the form of lower dividends or a smaller amount of retained earnings. On the other hand, some economists argue that the corporate income tax is shifted in part to consumers through higher prices and to resource suppliers through lower prices. In modern industry, where a small number of firms may control a market, producers may not be in the profit-maximizing position initially. The reason? By fully exploiting their market position currently, monopolistic firms l might elicit adverse public opinion and governmental censure. Hence, they may await such events as increases in tax rates or wage increases by unions to provide an "excuse" or rationale for price increases with less fear of public criticism. When this actually occurs, a portion of the corporate income tax may be shifted to consumers through higher prices.

Both positions are plausible. Indeed, the incidence of the corporate income tax may well be shared by stockholders and the firm's customers and resource suppliers.

Sales and Excise Taxes. Sales and excise taxes are the "hidden taxes" of economy. They are hidden because such taxes are typically shifted by sellers to consumers through higher product prices. There may be some difference in the shiftability of sales taxes and excises, however. Because a sales tax covers a much wider range of products than an excise, there is little chance for consumers to resist the price boosts, which sales taxes entail by reallocating their expenditures to untaxed products.

Property Taxes. Many property taxes are borne by the property owner for the simple reason that there is no other party to whom they can be shifted. This is typically true in the case of taxes on land, personal property, and owner-occupied residences. For example, v even when land is sold, the property tax is not likely to be shifted. The buyer will tend to discount the value of the land to allow for the future taxes, which must be paid on it, and this expected taxation will be reflected in the price a buyer is willing to offer for the land.

Taxes on rented and business property are a different story. Taxes on rented property can be, and usually are, shifted wholly or in part from the owner to the tenant by the simple process of boosting the rent. Business property taxes are treated as a business cost and therefore are taken into account in establishing product price; thus such taxes are ordinarily shifted to the firm's customers.

Tax service of Ukraine watches after the timely and complete receipt of taxes and observance of tax legislation.

A hospital as juridical person has separated property on balance, bank accounts, and right to independently dispose of resources (finances), to use stamp with name, to be a plaintiff and defendant in court. Hospital management is carried out by the head physician who manages the following documents: estimate of incomes and expenditures; list of staff; tariffing.

Tariffing is a document where staffs units of hospital and their salaries are fixed. On its basis an annual estimate on a pay-envelope is formed.

List of staff is a document, which represents distributing of quantity of physicians, supporting, and junior medical personnel according to quantity of persons who lives on territory of area of hospital.

Estimate is a document, which lights process of hospital financing for particular service. It is folded annually and computations are conducted on the basis of indexes last year. It also shows in some detail how it is proposed to spend finances.

3. Estimate forming in public health system

After creating the project of estimate a hospital sends it in the end current year in local department of public health. There on the basis of similar estimate documents of all local medical establishments a general budget is formed. It is sent in the local department of financial management, then — in the regional department of financial management, where budget of region on public health is formed. This budget is sent to Kiev, to Ministry of finance, where it is considered, and after claim of the state budget form control numbers which send in the regional department of financial management, and in the local department of financial management. After it the ratified money gets in the local department of public health, then — in hospital.

The old system of forming of local budgets was essentially keeping, without clear determination of obligations, but with rights of declaration.

Again, a budgetary process passes in two opposite directions. At first local Advices, beginning with rural, shortchange the charges and own fastened profits.

Money needed for hospital is transferred on its accounts not at one moment: for wages — monthly, and on other expenditures — daily. Therefore priority of necessity to which assignations are selected above all things is determined by a head physician. He also can distribute money within the limits of one hospital on months. So, for example, on food stuffs in January to use a less sum taking into account a plenty of holidays and reduction of number of patients, and due to it to multiply the sum of expenditure in next months. It is important that the annual index of expenditure on the feed answered an estimate.

Money selected on wages is expended only with the given purpose. Head physician no authority to dispose of them in other purposes.

Growth of efficiency of public production is condition to achievement of purpose not only for material production, but also for public health in the whole. Satisfaction of human needs in a public health and receipt of medical care will be realized in the process of creation of material, technical and scientific base of public health, perfection and development of its links.

Importance of public health is followed form such dependence: economics – social production efficiency – public health development – population reproduction.

Main positive of budgetary financing in public health system consists of the guarantee of receipt of medical care by any citizen. Inflexibility of financing of establishment of public health, the hard rates of wages resulted in complete incuriosity and indifference of medical personnel in the results of their activity – from one side, and gratuitous of receipt of medical care – to complete incuriosity and indifference of citizens to health – from the second (the system of public health of any country must meet definite universal criteria, and also take into account the features of human health of country, and also its morbidity).

Money expended in the public health system was considerably less, than in the developed countries. As result, there is considerable lag in the material system providing. It leads to more mental, analytical and professional development of physician.

On the definite stage of development of medical science soviet doctors with bare hands diagnosed and treated far not worse, than it is well “armed foreign”. But today, when medicine is included in engineering era, such competition is absurd. Lag in scientific and technical sense will lead to medicine disqualification.

Expenditures of public health grow in a whole world. Almost in all countries values of function of public health grow too. Researches of World Organization Health Cares showed that in much countries expenditure on public health constantly grow on average on 1%.

In “Bases of legislation of Ukraine of public health” is noticed that public health is one of priority directions of government activity. The state forms the policy of public health in Ukraine and provides its realization.

The state policy of public health is provided by budgetary assignations in size that answers its scientifically well-founded needs, but don’t less 10% of national income.

Financing of public health is carried out due to State budget of Ukraine, budget of Crimea Republic, budgets of local and regional self-government, funds of medical insurance, and charitable funds.

Money of the State budget of Ukraine, budget of Crimea Republic, budgets of local and regional self-government, assigned on a public health, are used for providing to population of assured level of medical care, financing of government and local programs of public health and fundamental scientific researches.

Volumes of budgetary financing are determined on foundation scientifically well-founded norms calculating on one habitant.

All establishments of public health have a right to use money for rise of quality level of work, that were voluntarily passed by business, establishments, organizations and separate citizens, and also with owners permission to set payment for services in public health.

State provides creation and function of the medical insurance system of population. Insurance of citizens is carried out due to the State budget of Ukraine, money of businesses, establishments and organizations and own payments of citizens.

State will organize material and technical providing of public health in volume necessary for presentation to population of assured level of medical help. All establishments of public health have a right independently to decide question of material and technical providing. State furthers production of medical apparatus, tool, equipment, laboratory reagents, and medicines, prosthetic and hygienically means and other necessary for public health wares.

According to this goal realization of the government programs of priority development of medical, biological and pharmaceutical industry is provided business and international cooperation in sphere of material and technical providing of public health are encouraged, system of the tax, price, customs and other privileges and regulators is created.

State can limit export of commodities necessary for public health, and raw material for their making, if it can harm to interests of public health of population.

For providing of quality of wares necessary for public health their application is allowed only after obligatory approbation, carried out in the order concerted with Ministry of Health of Ukraine.

All government programs in public health sphere and most important measures on their realization are subject to obligatory previous scientific examination in leading national and international establishments definite by Cabinet of ministers of Ukraine.

Academy of medical sciences of Ukraine, that is independent in conducting of researches and development of directions of scientific search, is higher scientific medical establishment of Ukraine with status of self-governing organization.

4. Public health system of Ukraine under the conditions of economic crisis and public relations

Sharp deficit of financial resources is the most substantial confusion of financing system. In the hierarchy of countries, that gave the statistics for international comparisons, Ukraine takes 32nd seat after the index of expenditures on public health per capita (18,3$); and 34 places on medical service in distributing for GNP per capita. The financial providing of public health is irregular and not planned.

The system of public health today is financed on final principle, but executed after expenditure. The middle size of expenditures from local budgets per capita grows annually, but sum is very scanty.

The average monthly wages of medical personnel of Ukraine makes 60,5% of average level on an economy.

Table 6.2

Average monthly wages of medical personnel of Ukraine, in UAN

years		1995		1998		1999		2000	2001	2002
UAN	78		126		131		139		183	196

In the structure of expenditures on public health 53% are occupied on the wages, 13% is communal payments and other on all the other necessity – medicines, equipments, feeds, medical ethnics, repairs etc. It is clearly, that this money is not enough. On January 1 in 2000 the personnel accrued compensation to the workers of public health made 139,2 mil UAN, in some regions the debt arrived at to 10 months. Debs on wages of medical personnel in 2000 were 139,2 million UAN.

Reduction of management level in public health has negative influence of financing of this sphere. With acceptance of "Law about local self-government in Ukraine" complexity of the system was lost; efforts of different departments of public health became disconnected. Importance of the strategic and current planning of public health went down. It is connected with absence of money on health care programs.

Non-development of mechanism of economic and public control in quality evokes retroaction of society on state policy in public health. As a result of low quality of medical care there are ill-timed and erroneous diagnoses, application of incomplete or incorrect medical treatment, that are results of morbidity and death rate. The weakened by crisis of public health system in modern difficult conditions of its existence is already unable to neutralize the negative influencing on the health of population of numerous social economic factors which promote the risk of morbidity and death. As a result, public health system protection is more removed from human necessities.

5. Essence of obligatory state medical insurance

Market conditions determine material responsibility not only employer but also workers in medical insurance.

For economic substantiation of project of Law of Ukraine "About obligatory state social medical insurance" is fixed method of computations of insurance payments, that is based on consideration of probability of appeal of citizens for the medical help.

In Ukraine from five types of social insurance, foreseen by Bases of legislation about obligatory state social insurance, practically operates three, which already have funds: Pension fund, Fund of employment and Fund of social insurance. General insurance tariff of deductions in these funds makes today 40% of wages, including 1,5-2% payments by insured.

For Ukraine obligatory medical insurance (OMI) all still remains theoretical notion, as to insure "all and all" the society is unable. In the same time voluntarily insurance medicine exists and confidently develops in Ukraine.

In Ukraine more than 70 companies have a licence that gives a right to get busy to voluntarily medical insurances, but only third part of them really work at this market. Among them are such insurance companies “Nadra”, “Oster-Kiev”, “Asca”, “Oranta” and others.

Insurance companies have different positions, experience, and authority; therefore cost of medical services and their volume are different in different companies.

Insurance sum is the sum on which person is insured according to insurance agreement. Tariff rate is still named a gross-bonus and consist of price and norm of charges on the conduct of business. In other words, it is money, which covers activity of company.

Separately State stock insurance association “Ukrainian Medical Insurance” stands at the market of medical insurance services, that uses a franchise right for insurance of foreign citizens that are found on territory of Ukraine.

Medical insurance is considered as a form of social care of population in public health sphere. Guaranteeing to the citizens medical care in case of beginning of insurance case due to the accumulated resources and financing of prophylactic measures is purpose of medical insurance care.

That is advantage of the system of obligatory medical insurance, which insurance payments do not dissolve in general budget, and go directly to the necessities of public health, providing only to payers the hard guarantees of definite level of medical service. At budgetary financing such guarantee is got to all population. Medical service becomes a commodity; in public health there are economic relations, which allow integrating this industry in general, market sphere.

At introduction of obligatory medical insurance the cost of medical services will be expressly definite, and every citizen of Ukraine can know, what real cost of medical care.

Public health industry has many problems. By Law financing hatches outside industry, role of Ministry of Health is not generally definite. More than 80% leaders of medical establishments against immediate introduction of obligatory medical insurance and consider expedient to wait till on the improvement of economic terms in country.

Organs of state administration by public health are interested in saving of administrative structures, providing of stable financing of medical establishments and saving of role of manager of budgetary resources. In transition to the system of obligatory medical insurance they come forward the guarantors of stability of work of system, and its effective functioning and development.

Complication of integration of medical establishments in the system of medical insurance is conditioned to those, that the existent system of public health follows administrative methods.

6. Guaranteed level of medical care

According to the Constitution of Ukraine “Everybody has right to public health, medical care and medical insurance”.

Public health care is provided by state financing of social and economic, medical and prophylactic programs.

State creates conditions for effective and accessible for all citizens’ medical service. In state and communal establishments of public health medical care is given by free of charge. State assists to development of medical establishments of all forms of ownership.

State cares of development of physical culture and sport, provides sanitary and epidemic prosperity.

In “Bases of legislation of Ukraine about public health” in the article “Guarantee of right to public health” is noticed that realization of constitutional rights for citizens on public health is carried out by a way:

a) creation of network of establishments of public health;

b) organizations and conducting of the system of state and public measures on care and strengthening of health;

c) presentation to all citizens of assured level of medical help in necessary volume;

d) realization of state and public checking features and supervision in public health;

e) organization of the state system of collection, treatment and analysis of social, ecological and special medical statistical information;

f) establishment of responsibility for violation of rights and legal interests of citizens in public health”.

State and communal establishments of health protection give such kinds of free medical help first aid, ambulatory and policlinic, stationary, by directions of medical and social expert commissions, medical and advisory boards, and first dental aid, before medical care to the villagers, medical and social examination of loss of capacity.

Such free medical care is given by settled to application in Ukraine by the methods of diagnostics and medical treatment, including medications, blood and its components and preparations, apparatus, laboratory and others researches with the use of present material and technical base.

The state guarantees presentation of the medical care foreseen by the government programs having a special purpose.

The volume of free medical care settles accounts on the basis of norms of presentation of ambulatory-policlinic, stationary and first aid calculating on a 1 thousand of persons, for a year by one establishment of public health.

The norms of financing on 1 habitant are formed by the organs of executive power on the basis of definite by them indexes of cost of medical care presentation after its kinds in accordance with methodical recommendations.

CONCLUSIONS

1. There are three basic types of organization financing of public health services: state financing with its versions, insurance medicine and private relations.

2. In the basis of budgetary financing the plan of incomes and the charges authorized for the certain period lays.

3. Incomes of the budget are formed mainly, than the account of taxes and other not tax payments.

4. Process of financing of hospital is regulated by the estimate, which develops on the basis of parameters of the last year.

5. For Ukraine obligatory medical insurance is theoretical concept, of the place with that widely voluntary medical insurance takes root.

TEST QUESTIONS

1. What three basic types of organization financing of public health services do you know?

2. What is the basis of budgetary financing?

3. Give the characteristic of tax system in Ukraine.

4. What may be happened after the raisings of tax rates?

5. Assess obligatory state medical insurance.

6. What does the guaranteed level of medical aid in Ukraine represents?

BASIC TERMS AND CATEGORIES

Budget is an estimate of income and expenditure for a future period as opposed to an account, which records financial transactions.

Subject of taxation or payer is a natural or juridical person, which pays a tax.

Object of taxation is that is imposed tax for a payer. Payer is interested the object to be lesser, and the state – bigger.

Unit of taxation is unit of measuring of object of taxation. It can have money or physical form.

Tax rate is the percentage rate at which a tax is levied on a particular activity. Tax rates are divided on stable and percent.

Stable tax rates are fixed and non-fixed. Non-fixed stable rates are used in time of economic instability and inflation.

Tax quota is a part of tax in the profit of payer and characterizes level of taxation.

Tax service is the state organs that control taxes coming in time.

Tariffing is a document where staffs units of hospital and their salaries are fixed. On its basis an annual estimate on a pay-envelope is formed.

List of staff is a document, which represents distributing of quantity of physicians, supporting, and junior medical personnel according to quantity of persons who lives on territory of area of hospital.

Estimate is a document, which lights process of hospital financing for particular service. It is folded annually and computations are conducted on the basis of indexes last year. It also shows in some detail how it is proposed to spend finances.