2.2.4 Government expenditure (G)

Question 1

State the two main influences on government expenditure

Answer 1

o the trade cycle
o fiscal policy

Question 2

Define government spending

Answer 2

Spending by government on education, health care and defence & other public services
- N.B only money that direclty contrbutes to the output of the economy is included so transfers of moneys like benefits (JSA) not included

Question 3

Define access to credit

Answer 3

The willingness and ability of financial institutions to lend funds to producers and consumers.

Question 4

Define trade cycle

Answer 4

A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc

Question 5

Define fiscal policy

Answer 5

meaning: A government’s policy regarding taxation and public spending.
- can be loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) - - or tight (with the emphasis on cutting spending and raising extra tax revenue, resulting in a slower-growing economy.

Question 6

define budget deficit

Answer 6

gov spending is grater than its revenue

Question 7

define budget surplus

Answer 7

gov spending is less than it revenue
budget surplus = withdrawal from circular flow
budget deficitu = injection into circular flow

Question 8

How does low AD affect gov spending

Answer 8

Period of recession:
Low AD and slow econ growth = gov overspend (causing budget deficit) in order to increase AD and boost econ growth - this is an example of fiscal policy

Question 9

How does high AD affect gov spending

Answer 9

Period of economic boom in trade cycle:
AD is high and economy experiencing boom = government might increase taxes and spend less = reduce AD and slow down economic growth

Question 10

How is fiscal policy used

Answer 10

Gov use fiscal policy to alter their spending and taxtion to influence AD

Question 11

Influence of demand for exports

Answer 11

If the world economy is booming, demand for exports is likely to increase and therefore exporting firms’ investment is likely to increase to cope with this extra demand. This will have a knock-on effect and encourage other firms to increase their investment

Question 12

impact of the trade cycle

Answer 12

recession: increase spednign to increase AD thus reducing unemployment as labour is derived demand. already spend more bc increased unemployment means more benefits spending

boom: During booms, the government may
decrease spending to decrease demand and reduce inflation.