2.2.4 Government spending

Question 1

Explain what is meant by Government Expenditure

Answer 1

tax revenue and borrowing spent by the government for the benefit of the citizens country

Question 2

Define Transfer Payments

Answer 2

welfare payments made available though social security system

Question 3

Explain why Transfer Payments are not included in the G component of AD

Answer 3

because they’re reallocated not spent

Question 4

Explain why Government Spending is typically counter-cyclical to the trade cycle

Answer 4

to avoid recession and ongoing boom

Question 5

Explain the difference between expansionary and contractionary fiscal policy

Answer 5

expansionary involves boosting AD by increasing government spending or lowering taxes, whereas contractionary involves reducing AD by reducing government spending or increasing taxes

Question 6

Explain which of these two would likely result in higher Government Spending

Answer 6

Expansionary

Question 7

Explain why this is not necessarily always the case

Answer 7

contractionary reduces consumption, so government have to spend to prevent recession