2.2.4 Government expenditure (G)

Question 1

What is government expenditure?

Answer 1

Government expenditure is influenced by the trade/business cycle and spending linked to achieving policy aims.

Question 2

Explain how the influence of trade/business cycles can change government expenditure?

Answer 2

/Unemployment decreases with a booming economy leading to a lower level of means tested benefit payments - and vice versa
/Tax revenue increases with a booming economy and can be used to pay back government debt or increase expenditure on public/merit goods - and vice versa

Question 3

Explain how influence of policy aims can change government expenditure?

Answer 3

/Fiscal Policy is set once a year and announced during the presentation of the Government’s budget
/Expenditure is directly related to the Government’s objectives and policy aims

Question 4

What is the fiscal policy?

Answer 4

The use of government spending and taxation to influence the economy and achieve macroeconomic objectives.