Finance as an economic category: essence and functions

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:54

Finance as an economic category is the most important part of the global economic system. In fact, they are a tool through which the redistribution of GDP is carried out, and the creation and operation of various monetary funds is also controlled. Many people combine the concepts of finance and money, but such a solution is fundamentally wrong. Finance as an economic category is a narrower concept, since, unlike monetary relations, they reflect only those cash flows that go through special funds and do not take into account the interaction of ordinary people. Thus, the essence of finance and their functions have their own characteristics in comparison with money. Let's take a closer look at this issue.

Finance as an economic category has several main functions:

• Distribution - with its help, all economic entities are financed with the necessary funds. The most obvious example in this case is the example of the state budget, which initially collects taxes from citizens of a particular country. AfterOnce the budget is replenished from all possible sources of funding, the distribution of funds between various organizations, ministries and other economic structures begins. It is this function of finance that allows all citizens of the state to receive their share of the gross domestic product, and the state to fulfill its obligations to the population.

• The control function allows you to obtain information about the production process as a whole and its various components. It is this function that allows you to quickly receive information and make decisions about changing the situation.
• Fiscal - consists in the withdrawal by the state from citizens and enterprisesof their income in order to maintain the state apparatus and carry out its functions. It is through the payment of taxes that the country's budget is formed, which is then distributed to defense, education, medicine, science and culture, as well as other components of our life.



• The incentive function is a tax rate that is different for different categories of citizens and businesses. In addition, it implies the existence of benefits and pen alties, which help not only to collect taxes on time, but also contribute to the development of certain sectors of the economy. An example of this function is the state program aimed at the development of small businesses. Many entrepreneurs can currently work under a simplified taxation system, as well as receive stategrants and subsidies.

It is finance as an economic category that reflects the development of society and the state, giving instant signals in the event of an unfavorable development of the situation. A competent approach to financial relations and constant control over them will help the government avoid unforeseen situations and economic crises.

As you can see, the role of finance in the economy is huge.