2.2.4 Government expenditure (G)

Question 1

The manner in which a country’s government spends and rasies money is called…

Answer 1

Fiscal policy

Question 2

What is government expenditure?

Answer 2

The money spent by the government on public goods and services. E.g. education, health care, defence, etc.

• It is also known as government spending.

Question 3

How significant is changes in government expenditure on AD?

Answer 3

Government spending is quite a large component of aggregate demand, so changes in government spending can have a big impact on it.

Question 4

How do views on government expenditure change?

Answer 4

Political ideologies and beliefs can influence how a government spends its tax revenue.

When governments change, government expenditure often changes too.

Question 5

How do governments fund expenditure?

Answer 5

• Taxes
• Debt repayment – Money from countries we have lent money to.
• Investment income – Either from land or stocks and shares.
• Borrowing – Treasury bonds
• Donations (typically via wills)
• Crown estate – Everything owned by the Royal Family.
• Asset disposal – Privatisation of companies (e.g. British Gas) or selling of assets (e.g. gold or land.)

Question 6

What are some examples of taxes the government collects?

Answer 6

• Income tax
• VAT
• Council tax
• Sugar tax
• Stamp duty
• Alcohol duty
• Tobacco duty
• National insurance
• Corporation tax
• Bedroom tax
• Road tax
• Business tax
• Landfill tax
• Fuel duty

Question 7

What does a government budget do?

Answer 7

It outlines a government’s planned spending and revenue for the next year.

Question 8

Budget deficit

Answer 8

Where government spending is greater than revenue.

Question 9

Budget surplus

Answer 9

Where government spending is less than revenue.

Question 10

What do government deficit/surpluses affect the circular flow?

Answer 10

• A budget surplus will indicate an overall withdrawal from the circular flow
• A budget deficit will indicate an overall injection into the circular flow.

Question 11

What might a long-term budget surplus do to the economy?

Answer 11

A long-term surplus might mean the government is harming economic growth by choosing not to spend, or by keeping taxes too high. A long-term deficit is likely to mean a country has a large national debt.

Question 12

What is ‘balancing the budget’?

Answer 12

Where governments try to make spending equal to revenue.