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Decisionmakers must consider what allocations are reasonable and appropriate given national health goals and resource availability. Affordability Affordability is a necessary condition for achieving efficient and effective resource use (de Ferranti, Prescott, and Over 1991). Financing constraints undermine the effectiveness and the continuity of health sector activities. Health programs and activities are affordable only if the financial contributions necessary Page 17 for their continued operation, on the scale expected, can be made available.

Continued fiscal deficits can create inflationary pressures. Monetary policy is a related concept. Governments affect the total supply of money through their power to create money and regulate the banking system, including interest rates. For our purpose, it is sufficient to say that monetary policy can significantly affect savings and investment through its effects on interest rates, credit availability, and inflation. For example, to control inflation the monetary policy might cut back on the supply of money and increase, accordingly, interest rates (a tight money policy).

Because different forces affect incomes and expenditures, it is important to recognize, understand, and examine both sides of the macroeconomic circle as well as their interrelationships. An elaboration of these flows reveals some additional linkages. Part of the income that individuals receive is used to pay government taxes. Companies make similar expenditures. Thus, taxes become the income flow to a government that enables it to make the expenditures that constitute G in the GNP equation. Another linkage between government, business, and households flows in the opposite direction from taxes.

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