2.2.4 Government Expenditure (G) ✅ Flashcards
What does the impact of gov spending to AD depend on and why?
Tax. As if it increases same amount with gov spending there is not increase in AD as people have less disposable income (less consumption).
What is gov spending?
Spending by central and local gov on goods and services like healthcare and education.
What is negative economic growth and when does it happen?
When gov spending will go up and tax revenue will decrease. (In a recession).
What are automatic stabilisers? When do they occur?
Gov will cover any benefits needed during lower demand (recession).
Help reduce severity impacts of economic fluctuations.
Mechanisms which reduce impacts of changes in economy gov spending and tax are automatic stabilisers which adjust.
Draw the trade cycle?
X axis= time
Y axis= real GDP
Tread growth curve (straight upwards line)
Actual growth line (should show: positive and negative output gap, boom, slowdown, recession and recovery).
How does the trade cycle effect gov spending?
It is what the gov try to regulate by influencing AD.
What is a boom? What is gov spending like during it?
Higher level of output.
Gov spending decreases to decrease demand in order to reduce inflation.
What follows a boom?
Slowdown, recession and recovery.
What is a recession and how does it effect gov spending?
2 Consecutive quarterly declines in GDP.
Gov spending will increase (reduce unemployment and stimulate demand).
What policy is when governments make decisions on their budget (tax and spending)?
Fiscal.
What is a budget deficit? How to remember?
Spending more than received in tax. D for dead (need to spend or this will happen).
What is a neutral budget?
Amount received and spent by gov is equal.
What is a budget surplus?
More tax received then spent.
What would gov spend on Current expenditure or capital expenditure in order to shift the PPF out?
Capitol expenditure - physical asset to help develop creating more efficient infrastructure.
