2.2.4 Government spending

Question 1

The trade cycle on government expenditure: (2)

Answer 1

• During recessions, governments might increase spending tottery and stimulate the economy for example on welfare
• During periods of economic growth, governments may receive more tax revenue
  since consumers will be spending more and earning more. They may decide to spend less, since the economy does not need stimulating, and fewer people will be claiming benefits

Question 2

Fiscal policy on government expenditure: (2)

Answer 2

• The government might use expansionary fiscal policy during periods of economic decline. This involves boosting AD or reducing taxes.
• During periods of economic growth, governments might use contractionary fiscal policy by decreasing expenditure on purchases. Additionally, tax rates might increase. This reduces the size of the government budget deficit.