2.2.4 Government Expenditure (G)

Question 1

What are the 2 core influences on Government expenditure?

Answer 1

• The Trade Cycle
• Fiscal Policy

During recessions governments might increase spending or reduce taxation to stimulate growth.

Question 2

What is the ricardian equivalance theory?

Answer 2

Government spending will not boost
GDP because consumers will reduce their consumption as they know the government will raise tax rates in the future.

Question 3

What is Debt Servicing?

Answer 3

The money the government pays on their debts through interest or lump sum payments.

It creates an oppurtunity cost.