2.2.4: Government Expenditure (G) Flashcards
What is government expenditure?
Spending by the public sector on goods/services (e.g. education, healthcare, defence).
What do the levels of government spending AND areas of government spending depend on?
-The government’s reading of economic conditions.
-Varying priorities.
What factors influence government expenditure?
-The Trade Cycle.
-Fiscal policy.
How does a recession affect government expenditure in the Trade Cycle?
Economic growth is negative. The deficit increases as the government:
-receives less tax revenue (due to increasing unemployment).
-increases spending (unemployment benefits).
How does a boom affect government expenditure in the Trade Cycle?
Economic growth is positive. The surplus increases as the government:
-receives more tax revenue.
-decreases spending.
What is an example of automatic stabilisers in government expenditure?
The government paying more in unemployment benefits to counter the fall in demand.
What is fiscal policy?
The use of government spending & taxation policies to influence macroeconomic conditions.
What is an automatic stabiliser?
A policy that offsets fluctuations in the economy.
Some government spending is ________ from year to year
(e.g. schools must be ________, pensions must be ________ ________).
Fixed.
Funded, paid for.
What sort of policy is a fiscal policy?
A demand-side policy (works by influencing the AD level).
What are features of expansionary fiscal spending?
-During periods of economic decline.
-Increasing spending, boosting AD.
-Reducing taxes.
What are features of contractionary fiscal policy?
-During periods of economic growth.
-Reducing spending.
-Increasing taxes.
What is current expenditure?
Spending on the day-to-day running of the country (e.g. wages).
What is capital expenditure?
Spending on maintaining, improving or buying new fixed assets.
